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9022 - Financial Statements Translation

The document contains a CPA review course material on IAS 21 Foreign Currency Translation. It includes 3 parts: 1) theory questions on translating monetary and non-monetary items and recognizing exchange differences, 2) 3 practice problems calculating foreign currency translation amounts for financial statements, and 3) answers to the practice problems. The practice problems involve translating assets and liabilities with different functional and presentation currencies between subsidiaries and consolidating foreign operations.

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Aljur Salameda
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863 views3 pages

9022 - Financial Statements Translation

The document contains a CPA review course material on IAS 21 Foreign Currency Translation. It includes 3 parts: 1) theory questions on translating monetary and non-monetary items and recognizing exchange differences, 2) 3 practice problems calculating foreign currency translation amounts for financial statements, and 3) answers to the practice problems. The practice problems involve translating assets and liabilities with different functional and presentation currencies between subsidiaries and consolidating foreign operations.

Uploaded by

Aljur Salameda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

Advanced Financial Accounting GERMAN / VALIX / K. DELA CRUZ / MARASIGAN


IAS 21: Foreign Currency Translation

Part I: Theory of Accounts

1. Under IAS 21, monetary items are cash or elements of financial statements which are receivable or
payable in a fixed amount of cash. Which of the following is a monetary item?
A. Equipment
B. Purchases
C. Sales
D. Interest receivable

2. Which of the following is a nonmonetary item?


A. Loan payable
B. Accounts receivable
C. Supplies
D. Notes payable

3. IAS 21 provides that an entity may present its financial statements in any currency even different
from its functional currency. When the company translates its financial statements from its
functional currency to its selected presentation currency, how shall the exchange differences arising
from the translation be recognized?
A. It shall be recognized in other comprehensive income without reclassification adjustment and
reclassified directly to retained earnings if realized.
B. It shall be recognized directly to retained earnings.
C. It shall be recognized in profit or loss.
D. It shall be recognized in other comprehensive income with reclassification adjustment to profit
or loss if realized.

4. When translating the financial statements of an entity from its functional currency to its selected
presentation currency, which of the following translation measurement is incorrect?
A. Assets and liabilities are translated at the closing rate at the date of statement of financial
position.
B. Income and expenses are translated at (1) exchange rates at the date of the transaction or (2)
Average rate for the period for practicality.
C. Retained earnings are translated using the average rate during period.
D. Equity accounts other than retained earnings are translated at the date of the transaction
resulting to that equity items.

5. Which of the following statements concerning exchange differences arising from entity’s net
investment in foreign operation is correct?
A. Exchange differences arising on a monetary item that forms part of a reporting entity’s net
investment in a foreign operation shall be recognized in profit or loss in the separate financial
statement of the reporting entity or the individual financial statements of the foreign operation,
as appropriate.
B. In the consolidated financial statements of the reporting entity which includes that of a foreign
operation which is a subsidiary, the exchange differences shall be recognized initially in other
comprehensive income.
C. On the disposal of foreign operation, the cumulative amount of the exchange differences
relating to foreign operation, recognized in other comprehensive income and accumulated in
separate component of equity shall be reclassified from equity/cumulative OCI to profit or loss
as reclassification adjustment when the gain or loss on disposal is recognized.
D. All of the above.

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Part II: Problem Solving

Problem 1

Sawadee Philippines is a subsidiary of Sawadee Thailand. The functional currency of Sawadee


Philippines is peso while the presentation currency of its parent, Sawadee is baht. For the year ended
December 31, 2021, Sawadee Philippines has the following UK pound denominated assets: Notes
Receivable of £5,000 and Furnitures of £800. The rate on the inception date for Notes Receivable and
Furnitures are £1=P68.40 and £1=P68.15 and P1=Baht 1.55 and P1=Baht 1.52, respectively. The
exchange rate on December 31, 2021 is £1=P68.55 and P1=Baht 1.50.

1. In the separate Statement of Financial Position of Sawadee Philippines on December 31,


2021, compute the reportable amount of Notes Receivable and Furnitures, respectively.
A. P342,750 and P54,520
B. P342,000 and P54,520
C. P342,000 and P54,840
D. P342,750 and P54,840

2. In the consolidated Statement of Financial Position of Sawadee Thailand on December 31,


2021, compute the reportable amount of Notes Receivable and Furnitures, respectively.
A. Baht513,000 and Baht81,780
B. Baht514,125 and Baht82,260
C. Baht514,125 and Baht81,780
D. Baht513,000 and Baht82,260

Problem 2

Manila Corporation owns majority of the outstanding shares of Victoria Corporation which is
operating in Canada wherein the functional currency is the Canadian Dollar. However, the presentation
currency of Victoria Corporation is the Philippine Peso. For the year ended December 31, 2021,
Victoria Corp. presented its Statement of Financial Position in its functional currency of CAD:
Current assets $50,000 Current liabilities $50,000
Noncurrent assets 200,000 Noncurrent liabilities 100,000
Ordinary share capital 25,000
Preference share capital 40,000
Retained earnings 35,000
Total Assets $250,000 Total Liabilities and shareholders $250,000

 The ordinary shares are issued on January 1, 2020, the date when Victoria was incorporated, while
the preference shares are issued on July 1, 2020.
 Victoria Corp. reported net income CAD36,000 during 2020 and declared dividends of CAD5,000
on October 1, 2020.
 Victoria reported CAD5,000 net income during 2021 and declared dividends in the amount of
CAD1,000 on December 1, 2021.

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The following direct exchange rates are provided:


January 1, 2020 P40.0
July 1, 2020 42.0
October 1, 2020 45.6
Average rate 2020 48.0
December 31, 2020 43.0
December 1, 2021 41.0
December 31, 2021 45.0
Average rate 2021 44.0

1. Compute the amount of translation gain as component of other comprehensive income


presented in the Statement of Comprehensive Income for the year ended December 31, 2021
A. 202,000
B. 209,000
C. 193,000
D. 196,000

2. Compute the cumulative translation credit balance presented in the Statement of Financial
Position on December 31, 2021
A. 127,000
B. 141,000
C. 134,000
D. 123,000

Problem 3

QRS Corporation of Ortigas paid P10,980,000 for a 25% interest in Orchard Company of Singapore on
January 1, 2021, when Orchards’s net asset totaled SGD1,200,000 and the exchange rate for SGD was
P36.60. Net income of Orchard in 2021 amount to SGD240,000 while dividends declared and paid
amount to SGD80,000. The average rate in 2021 was P36.50 while the rate on the date of declaration
of dividends was P36.65.

In anticipation of the weakening of the local currency during the last quarter of 2021, QRS Corporation
borrowed SGD150,000 from a bank in Singapore for one year at 10% interest on October 1, 2021 to
hedge its net investment in Orchard.

The loan was made when the exchange rate for SGD was P36.52. The loan was denominated in SGD
and the closing rate at December 31, 2021 was P36.70.

Compute the other comprehensive income – translation adjustment presented in equity in 2021
as a result of hedging.
A. 41,000
B. 27,000
C. 14,000
D. 0

- END-

9022

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