Page 37 - CIMA MCS Workbook February 2019 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

is probable that financial assistance may need to be repaid, and it can be reliably measured, it will
meet the definition of a provision and should be recognised in the financial statements. If it is
regarded as only possible, it should be disclosed in the notes to the financial statements as a
contingent liability.

Requirements of IAS 21 re foreign currency transactions
Transactions in a foreign currency are initially translated at the spot rate in force at the date of
the transaction. When transactions are settled, such as when the supplier is paid after having
purchased goods on credit, the payment is also translated at the spot rate in force at the date of
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 historic cost or in the case of
the item being revalued, the rate from the date of the revaluation.

Application to Crowncare – foreign currency transactions
There is no immediate or obvious indication that Crowncare undertakes transactions
denominated in foreign currency. However, this could change if, for example, it purchased dental
equipment from a supplier outside of Varentia.

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.

KAPLAN PUBLISHING 87