Page 37 - CIMA MCS Workbook November 2018 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

the payment. A foreign exchange gains/loss will arise due to the movement of the exchange rate
between the transaction and the settlement date, which will be credited / charged to profits.

Any balances originating in a foreign currency that are still held at the reporting date are classified
as either monetary or non‐monetary. Monetary assets & liabilities are those that will lead to the
receipt or payment of a determinable number of currency units. Examples of monetary balances
are receivables, cash, payables and loans. Non‐monetary balances are items such as PPE,
intangible non‐current assets and inventory.

At the reporting date, monetary balances are retranslated at the closing rate (i.e. the rate in force
at the reporting date) with any foreign exchange gain/loss being charged to profits.

Non‐monetary items are not retranslated and will remain at their historic rate. This will be the
rate from when the item was originally acquired if it is measured at historical cost or in the case of
the item being revalued, the rate from the date of the revaluation.

Application to Grapple – foreign currency transactions

Grapple may enter into individual transactions denominated in foreign currency. If this occurs, the
transaction would be translated at the rate ruling at the date of the transaction. Any subsequent
exchange gain or loss on settlement would be recorded as an item of other income or expense in
arriving at profit before tax within the SP&L. This could be the case if, for example, Grapple
purchased items of PPE from an entity based outside of Zedland which has a functional currency
different to the Z$.

Requirements of IAS 21 re foreign operations
When a subsidiary has a different functional currency to that of the parent entity, the subsidiary
will be classed as a foreign operation.

In order to consolidate a foreign operation, the assets and liabilities will be translated using the
“closing rate” i.e. the rate in force at the reporting date. Goodwill arising on the acquisition of the
subsidiary will also be translated at the closing rate. Items of income or expense are translated at
the average rate for the year.

Foreign exchange gains or losses will arise on the retranslation of the net assets each year along
with the retranslation of goodwill. The gains/losses are recognised in other comprehensive
income and are split between the parent and non‐controlling interest shareholders of the
subsidiary.

Application to Grapple – foreign operations
Currently, Grapple does not have any subsidiaries ‐ either within Zedland or elsewhere.

IFRS 5 Assets held for sale and discontinued operations
IFRS 5 requires that an asset (or group of assets) is classified as ‘held for sale’ if it meets specified
criteria, including there is an immediate commitment to sell the asset in its current condition at a
realistic price. If an asset meets this definition, it should be reclassified as a current asset and

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