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Exercise Chapter 1

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145 views

Exercise Chapter 1

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Phan Thị Mỹ Duyên
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© © All Rights Reserved
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Chapter 1

Question 1.1 Foreign currency transactions – monetary items


On Dec 31, 2017, entity E has trade receivables from the foreign customers A and B. E’s
functional currency is the yen. The following quotes are direct (1 foreign currency unit = x yen):
Date of the Foreign Exchange rate Exchange rate
transaction Currency on the date of on Dec 31, 01
units the transaction
Customer A Nov 01, 01 50m 5 6
Customer B Dec 01, 01 80m 12 9

Required
Prepare any necessary entries in E’s financial statements as at Dec 31, 2017.

Question 1.2: Translation of foreign currency financial statements – current rate method
On Jan 01, 01, entity E (a Chinese entity) acquires 100% of the shares of a foreign operation.
E’s consolidated financial statements are presented in CNY (presentation currency). The
financial statements of the foreign operation are presented in foreign currency F. Assume
that currency F is the foreign operation’s functional currency. Consequently, translation is
effected according to the current rate method. The following quotes are direct (1 unit of
currency F = x CNY):

Exchange rate on Jan 01, 01 7


Exchange rate on Dec 31, 01 8
Average exchange rate for 01 9

The following tables are simplified presentations of the foreign operation’s statement of
financial position II as at Dec 31, 01 and its separate income statement II for the year 01
(in currency F):
Statement of financial position II Dec 31, 01
Land 50m
Buildings 50m
Inventories 20m
Cash 30m
Total assets 150m
Share capital 80m
Retained earnings 10m
Liabilities 60m
Total equity and liabilities 150m

Separate income statement II Year 01


Revenue 80m
Raw material and consumables used −50m
Depreciation expense −10m
Other expenses −10m
Profit for the year 10m

Required
E prepares its consolidated financial statements as at Dec 31, 01. Perform the necessary
foreign currency translation of the financial statements of the foreign operation. Assume
for simplification purposes that it is acceptable to use an average exchange rate for the year
for the appropriate items.

Question 1.3: White Cliffs Co (US company), whose year end is 31 December, buys some
goods from Rinka SA of France on 30 September 2016. The invoice value is €70,000 and is due
for settlement in 31 January 2017. The exchange rate moved as follows.

30 September $1 = 1.60 €
31 December $1 = 1.40 €
31 January $1 = 1.80 €
Required
State the accounting entries in the books of White Cliffs Co.

Question 1.4: Monetary vs. non-monetary items


(a) In Dec 01, entity E delivers merchandise to entity F. Hence, E recognizes a trade receivable.
(b) On Dec 31, 01, merchandise is stored in E’s warehouse.
(c) On Dec 01, 01, E pays the rent for a machine rented under an operating lease for the period
Dec 01, 01 to Feb 28, 02 in advance. The rent is CU 1 per month. Correctly, E makes the
following entry:
Dec 01, 01 Dr Deferred expense 2
Dr Expense 1
Cr Cash 3
(d) E holds 3% of the shares of entity G.
(e) E has recognized a deferred tax liability in its statement of financial position.
Required
Determine whether the bold items are monetary or non-monetary items in E’s financial
statements as at Dec 31, 01.

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