B407F Week 12 Tutorial solution

B407F Week 12 Tutorial solution - B407F Week 12 Tutorial...

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B407F Week 12 Tutorial Solution - Effect of changes in foreign exchange rates Question 1 (a) Journal entries to be made for the year ended 31 December 2008 (all in HK$ million): On 1 February 2008: Debit ($m) Credit ($m) On 1 February 2008: Deposit/prepayment [€ 3 x 11.7] 35.1 Bank 35.1 To record the payment of the deposit of EURO 3 million On 1 April 2008: Equipment 115.6 Deposit/prepayment [€ 3 x 11.7] 35.1 Payable [€ 7 x 11.5] 80.5 To record the recognition of the equipment and the corresponding payable On 30 September 2008: Payable 80.5 Bank [€ 7 x 11.3] 79.1 Exchange gain 1.4 To record the settlement of the payable and recognition of the exchange gain On 31 December 2008: Depreciation charge [(HK$115.6/10) x 9/12] 8.67 Accumulated depreciation 8.67 To record the 9 months depreciation charge up to 31 December 2008 (b) HKAS 21.39 sets out the requirements for translation of results and financial position of an entity from its functional currency to the presentation currency. At 31 December 2008, the equipment is carried at cost less deprecation of HK$106.93 million (HK$115.6 million less HK$8.67 million). This amount shall be translated at the exchange rate at this date, i.e. HK$11.8 = EURO 1. Accordingly, the equipment would be presented at EURO 9.06 million (HK$106.93 million /HK$11.8). 1
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The depreciation charge for the 9 months ended 31 December 2008 of total HK$8.67 million shall be translated at the dates of the transactions. HKAS 21.40 states that for practical reasons, a rate that approximates the exchange rates at the dates of the transactions, for example an average rate for the period, is often used to translate income and expense items. Accordingly, the depreciation charge shall be translated at
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B407F Week 12 Tutorial solution - B407F Week 12 Tutorial...

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