IAS 21 Foreign currency Transactions … Feb 2020

There are two distinct types of foreign currency transaction, conversion and translation.
Conversion
Conversion is the process of exchanging amounts of one foreign currency for another.

Translation
Translation is required at the end of an accounting period when a company still holds assets
or liabilities which were obtained or incurred in a foreign currency.

Functional currency
The currency of the primary economic environment in which the entity operates.
An entity considers the following factors in determining its functional currency:
(a) The currency:
(i) that mainly influences sales prices for goods and services
(ii) of the country whose competitive forces and regulations mainly determine the
sales prices of its goods and services.
(b) The currency that mainly influences labour, material and other costs of providing
goods or services (this will often be the currency in which such costs are denominated
and settled).

The following factors may also provide evidence of an entity's functional currency:
(a) The currency in which funds from financing activities are generated.
(b) The currency in which receipts from operating activities are usually retained.

Reporting foreign currency transactions in the functional currency

Initial recognition
Translate each transaction by applying the spot exchange rate between the functional
currency and the foreign currency at the date of transaction (an average rate for a period
may be used as an approximation if rates do not fluctuate significantly).
At subsequent balance sheet dates
(a) Monetary assets and liabilities
Restate at closing rate.
(b) Non-monetary assets measured in terms of historical cost
Do not restate (i.e. they remain at historical rate).
(c) Non-monetary assets measured at fair value
Use exchange rate when fair value was determined.

Recognition of exchange differences

Exchange differences are recognised as part of profit or loss for the period in which they arise.

IAS 21 is not prescriptive about which caption the exchange difference would be included in.
The following however is the generally accepted approach:
Trading transactions – other income/expense
Financing transactions – finance income/finance costs

1
Example
San Francisco Co entered into the following foreign currency transaction:
31.10.X8 Purchased goods from Mexico SA for 129,000 Mexican pesos
31.12.X8 Payables have not yet been paid
31.01.X9 San Francisco Co paid its payables.
The exchange rates are as follows:
Pesos to $1 31.10.X8 9.5 31.12.X8 10 31.01.X9 9.7
Required
How would this transaction be recorded in the books of San Francisco Co for the years ended
31 December 20X8 and 20X9?

Solution DR CR
31.10.X8 Purchases (129,000 @ 9.50) 13,579
Payables 13,579

31.12.X8 Payables 679

Income statement – exchange gains 679
129,000 X 10 - 13,579

31.01.X9 Payables 12,900

Exchange losses 399
Cash (129,000 @ 9.7) 12,399

An entity's functional currency reflects the underlying transactions, events and conditions
that are relevant to it. Accordingly, once determined, the functional currency is not
changed unless there is a change in those underlying transactions, events or conditions.
Where there is a change in the functional currency, translation procedures applicable to the
new functional currency are applied prospectively from the date of the change.

Presentation currency
The currency in which the financial statements are presented.
An entity may present its financial statements in any currency (or currencies).

Translation rules
The results and financial position of an entity whose functional currency is not the currency
of a hyperinflationary economy are translated into a different presentation currency as
follows:
(a) Assets and liabilities for each balance sheet presented (i.e. including comparatives)
⇒ translated at the closing rate at the date of that balance sheet;
(b) Income and expenses for each income statement (i.e. including comparatives)
⇒ translated at actual exchange rates at the dates of the transactions (an average
rate for the period may be used if exchange rates do not fluctuate significantly);
(c) All resulting exchange differences
⇒ are recognised as a separate component of equity (the translation reserve).

Foreign operations
A foreign operation is an entity that is a subsidiary, associate, joint venture or branch of a
reporting entity, the activities of which are based or conducted in a country or currency
other than those of the reporting entity.

2
Translation method
The foreign operation determines its own functional currency and prepares its financial
statements in that currency.

Where different to the parent's functional currency, the financial statements need to be
translated before consolidation.

The financial statements are translated into the presentation currency (functional currency of
the reporting entity) using the presentation currency rules outlined above.

Any goodwill are treated as assets and liabilities of the foreign operation and are translated
at the closing rate.

In practical terms the following approach is used when translating the financial
statements of a foreign operation for exam purposes:

(a) Balance sheet

All assets and liabilities – at closing rate
Share capital and pre-acquisition reserves – at historical rate
Post-acquisition reserves – Profit at average rate for each year
– Dividends at actual rate
Translation reserve – Balancing figure

(b) Income statement

All items – at actual rate or average rate as an approximation

Calculation of translation reserve/ exchange differences

The exchange differences result from:
(a) translating income and expenses at the exchange rates at the dates of the
transactions and assets and liabilities at the closing rate;
(b) translating the opening net assets at a closing rate that differs from the previous
closing rate;
(c) translating goodwill on consolidation at the closing rate at each year end.

You may be required to calculate exchange differences recognised in the year or total
exchange differences recognised in the translation reserve. The exam approach to
calculating them is the same for both:

Exchange differences in the year/ in the translation reserve:

On translation of net assets
Closing net assets as translated XXX
Less: opening* net assets as translated at the time (XXX)
XXX
Less: retained profit as translated at the time (XX)
(XXX)
Group share % XXX
Exchange gain (loss) in goodwill XXX
XXX
* to calculate total exchange differences to date, substitute 'acquisition' for 'opening'.

3
Q1 Crescent Limited is a trading company. It imports electronic items from different countries.
Nov 19 On January 31, 2019, it imported Solid State Drives (SSD) and few other computer-related
items from China for an invoice value of ¥ 30,000. As per terms of the transaction, payment
was to be made in the following manner: ¥
• ¥ 20,000 on April 30, 2019
• ¥ 10,000 on July 12, 2019
Following were the exchange rates on relevant dates:
Rs.= ¥1
31-Jan-2019 20.70
30-Apr-2019 21.03
30-Jun-2019 23.75
12-Jul-2019 22.93
Company's financial year ends on June 30 each year.

Required:
How would the above transactions be recognized in the books of Crescent Limited? 09

Q2 Aarfeen Limited has a wholly owned subsidiary in Middle East whose functional currency
Aug 13 is UAE Dirham (Dhs.) while Aarfeen Limited’s functional currency is Pak Rupees. The
subsidiary owns a debt instrument classified as held for trading and carried at fair value of
Dhs. 5 million as on June 30, 2011. On June 30, 2012 the fair value of the debt instrument
increased to Dhs. 6 million. The exchange rates on different dates were as follows:

One UAE Dirham is equivalent to:

June 30, 2011 Rs.24
June 30, 2012 Rs.26
Average for 2011-2012 Rs.25

Required:
Explain the treatment of above transaction of Aarfeen Limited according to the relevant
IFRS.

Q3 Safeer (Pakistan) Textile Limited (SPTL) is a multinational company. The company is

Sept 17 principally engaged in manufacturing and selling of women's pret wear. The company
exports designer dresses to the United Kingdom (UK), United Arab Emirates (UAE) and
United States of America (USA). The company prepares its financial statements on
June 30, 2017. During the year, following transactions were incurred in foreign currency.

• On April 15, 2017, SPTL sold bridal dresses to a customer in UAE on account for
Dhs 20,000. The customer settled the transaction after one month and the company
received Dhs 20,000 on May 15, 2017.

• On May 01, 2017, the company has imported a machinery from the USA. The invoice for
the machinery was for US $ 110,000 which will be paid to the vendor by August 20, 2017.
The machinery was in operation on June 30, 2017 but no depreciation had been charged.

• The company's functional currency is Pakistani Rupee (PKR) and its exchange rate to
UAE Dhs and US $ are as follows:

4
 PKR to US $ PKR to UAE Dhs
15-Apr-17 103.50 27.50
01-May-17 103.75 27.30
15-May-17 102.50 28.50
30-Jun-17 102.75 29.00
20-Aug-17 103.50 27.00

Required: 10
As per IAS - The Effects of Changes in Foreign Exchange Rates, what will be the effect
of such transaction on profit or loss and how it will be reported in the financial statements
of SPTL on June 30, 2017 and June 30, 2018? Provide necessary calculation.

Q4 Extracts from the financial statements of A, its subsidiary, B and its associate, C for
the year to 30 September 2010 are presented below:

Summarised statement of comprehensive income

A B C
A$000 B$000 A$000
Revenue 4,600 2,200 1,600
Cost of sales and operating expenses (3,700) (1,600) (1,100)
Profit before tax 900 600 500
Income tax (200) (150) (100)
700 450 400
Other comprehensive income:
Revaluation of PPE 200 120 70
Total comprehensive income 900 570 470

Statement of financial position

Non-current assets
Property, plant and equipment 7,000 4,000 2,000
Investment in B 5,200
Investment in C 900
Current assets 3,000 2,000 1,000
16,100 6,000 3,000

Share capital 2,000 1,000 1,000

Reserves 12,100 3,500 1,500
Current liabilities 2,000 1,500 500
16,100 6,000 3,000

Additional information
1. The functional currency of both A and C is the A$ and the functional currency
of B is the B$.
2. A acquired 80% of B on 1 October 2007 for A$5,200,000 when the reserves of B
were B$1,800,000. The investment is held at cost.
3. A acquired 40% of C on 1 October 2005 for A$900,000 when the reserves of C were
A$700,000. The investment is held at cost in the individual financial statements of A.
4. No impairment to either investment has occurred to date.

5
 5. The group policy is to value the non-controlling interest at fair value at the date of
acquisition. The fair value of the non-controlling interest of B at 1 October 2007
was B$600,000.

6. Relevant exchange rates are as follows:

1-Oct-07 A$/B$0.5000
30-Sep-09 A$/B$0.7100
30-Sep-10 A$/B$0.6300
Average rate for year ended 30 September 2010 A$/B$0.6500

Required:
Prepare the consolidated statement of comprehensive income for the A Group for the
year ended 30-9-10 and the consolidated statement of financial position as at that date.
(Ans: TCI 2,767 Translation gain 802)

Q5 The income statements for HM and OS for the year ended 31-12-11 are shown below.
HM OS
A$000 Crowns 000
Revenue 5,200 4,500
Cost of sales (3,200) (3,000)
Gross profit 2,000 1,500
Distribution costs (800) (420)
Administrative expenses (450) (450)
Other income 80
Profit before tax 830 630
Income tax expense (250) (180)
Profit for the year 580 450

Additional information
1 1. HM acquired 80% of the ordinary share capital of a foreign entity, OS, on 1 January
2011 for Crowns 13,984,000. At the date of acquisition the net assets of OS had a fair
value of Crowns 15,800,000. The group policy is to value non-controlling interest at

fair value at the date of acquisition. The fair value of the non-controlling interest at
the date of acquisition was Crowns 3,496,000. The fair value adjustments related to
non-depreciable land. At 31 December 2011 the goodwill that arose on the acquisition
of OS was impaired by 20%. Impairment is translated at the average rate and is
charged to group administrative expenses.

2 The relevant exchange rates were as follows:

1 January 2011 A$/Crowns 1.61 (A$1 = Crowns 1.61)
31 December 2011 A$/Crowns 1.52 (A$1 = Crowns 1.52)
Average rate for 2011 A$/Crowns 1.58 (A$1 = Crowns 1.58)

Required:
(a) Calculate the translation gain or loss for the HM Group for the year ended 31-12-11.
(b) Prepare the consolidated income statement for the year ended 31-12-11.
(Ans: TCI 1,298 Translation gain 646)

6
Q.6 Bennie Co acquired 80% of Jennie Co for $993,000 on 1 January 20X1. Jennie Co is
a foreign operation whose functional currency is the Jen.
Balance sheets at 31 December 20X2 Bennie Jennie
$'000' J'000'
Property, plant and equipment 5,705 7,280
Cost of investment in Jennie 993
6,698 7,280
Current assets 2,222 5,600
8,920 12,880

Share capital 1,700 1,200

Pre-acquisition ret'd earnings 5,280
Post-acquisition ret'd earnings 5,185 2,400
6,885 8,880
Current liabilities 2,035 4,000
8,920 12,880
Income statements for year ended 31-12-20x2
Revenue 9,840 14,620
Cost of sales 5,870 8,160
Gross profit 3,970 6,460
Operating expenses (2,380) (3,570)
Dividend from Jennie 112
Profit before tax 1,702 2,890
Income tax expense (530) (850)
Profit for the period 1,172 2,040
Statement of changes in equity for the year (extract for retained earnings)
Balance at 31 December 20X1 4,623 6,760
Profit for the period 1,172 2,040
Dividends paid (610) (1,120)
Balance at 31 December 20X2 5,185 7,680

Jennie's balance sheets at acquisition and at 31 December 20X1 were as follows:

At acquisition 31-12-20x1
Property, plant and equipment 5,710 6,800
Current assets 3,360 5,040
9,070 11,840

Share capital 1,200 1,200

Retained earnings 5,280 6,760
6,480 7,960
Current liabilities 2,590 3,880
9,070 11,840

Exchange rates were as follows

1 January 20X1 $1: 12 Jens Weighted average rate for 20X1 $1: 11 Jens
31 December 20X1 $1: 10 Jens Weighted average rate for 20X2 $1: 8.5 Jens
31 December 20X2 $1: 8 Jens

An impairment test conducted at the year end revealed impairment losses of

1,496,000 Jens on recognised goodwill. No impairment losses were necessary in
the year ended 31 December 20X1.

7
 Jennie pays its dividends on 31 December. A dividend of 1,160,000 Jens was paid on
31 December 20X1.

Required
Prepare the consolidated balance sheet and income statement for the year
ended 31 December 20X2.

Q7 Draft Statements of Financial Position of `A' Limited, `B' Limited and `C' Limited, as at
Feb 17 June 30, 2016, are as follows:
Rs. in million
A Limited B Limited C Limited
Non-Current Assets
Property, plant and equipment 215 95 310
Investment in `B' Limited 135 - -
Investment in `C' Limited (an associate) 75 - -
Financial assets 16 14 80
Total non-current assets 441 109 390
Current Asset
Inventories 18 15 46
Trade and other receivables 28 27 66
Cash and cash equivalents 265 39 58
Total current assets 311 81 170
Total assets 752 190 560

Equity
Ordinary share capital of Rs. 10 each 320 65 200
Retained earnings 180 85 250
Other reserves 65 14 -
Total equity 565 164 450
Liabilities
Non-current liabilities 96 12 80
Current liabilities 91 14 30
Total liabilities 187 26 110
Total equity and liabilities 752 190 560

Additional Information:
• `A' acquired 80% of the equity shares of `B' Limited on July 01, 2014, when retained
earnings stood at Rs. 71 million, and other reserves were Rs. 12 million. The fair value
of the net assets of `B' Limited was Rs. 155 million at the date of acquisition, exclusive of a
contingent liability of Rs. 4 million. The fair value of the contingent liability was assessed at
Rs. 2 million at the date of acquisition and remained unsettled as at June 30, 2016. No
entry has been made to adjust the fair value impact. The remaining difference in the fair
value of the net assets at acquisition relates to the freehold land. The fair value of the
non-controlling interest (NCI) at acquisition was estimated at Rs. 32 million.

• `A' Limited also acquired 20% interest in `C' Limited on July 01, 2015 for Rs. 75 million,
having no significant influence. At the time of acquisition, the retained earnings of `C'
Limited stood at Rs. 150 million, and share capital at Rs. 200 million.

8
 • On June 30, 2016, `A' acquired additional 50% interest in `C' Limited for Rs. 255 million.
The retained earnings of `C' as on June 30, 2016 were Rs. 250 million. The fair values of
the net assets of `C' Limited were the same as their carrying amounts, at the date of the
acquisition. Adjustment related to 50% interest in `C' Limited has not been made in the
accounts of June 30, 2016.

• `A' Limited is planning to start foreign operations. To implement its plan on 1-1-16,
`A' Limited purchased an office building in China with a fair value of Chinese Yuan (CNY)
1 million. The consideration was paid by transferring a piece of land which `A' had owned.
The carrying amount of the land was Rs. 12 million with a fair value of Rs. 16 million. The
Accountant has yet to make entries with regard to fair value adjustment.
Moreover, `A' spent CNY 0.2 million on repair and maintenance of the building, which
has already been charged to the expense account. No other entries have been made in
relation to the building. The useful life of the building is 25 years. The fair value of the
property is CNY 1.4 million as at June 30,2016 `A' adopts the revaluation model under
IAS - Property, Plant and Equipment. The exchange rate between Pakistani Rupee (PKR)
and Chinese Yuan (CNY) was PKR 15.00 to CNY 1.00 as on January 01, 2016, and
PKR 15.50 to CNY 1.00 as on June 30, 2016.

• The group adopts the full goodwill method to measure the NCI at the date of acquisition.
• No impairment of goodwill was applicable as at June 30, 2016. No shares were issued
by any company since acquisition.
Required:
Prepare the Consolidated Statement of Financial Position of the `A' Group as at 30-6-16
in accordance with relevant IFRS

Q8 Sajid Ltd., acquired 80% shares of Faheem LLC, a foreign company dealing in currency
March 15 represented as FCR. The statements of financial position of both the companies as at
June 30, 2014 are as follows:
Amount ‘000’
Sajid Ltd. Faheem LLC
Assets (PKR) (FCR)
Non-current assets
Property, plant and equipment 45,000 21,400
Investment in subsidiary (FCR 24,000) 8,000
Loan to Faheem LLC 3,500
Current assets
Inventory 9,000 5,800
Trade receivable 6,000 4,650
Cash and bank account 2,500 14,950
74,000 46,800
Equity and Liabilities
Equity
Share capital Rs. 10 each 15,000
Share capital FCR 100 each – 8,000
Share premium 5,000 4,000
Retained earnings 13,500 15,000
Liabilities
Long-term borrowing 28,500 18,900
Current liabilities 12,000 900
Total equity and liabilities 74,000 46,800

9
 Profit for the year 7,000 13,000

Additional Information:
(i) Sajid Ltd., acquired the shares of Faheem LLC for FCR 24,000 on July 1, 2013
when the retained earnings of Faheem LLC were FCR 2,000. The fair value of
non-controlling interest at the date of acquisition was FCR 9,000.
(ii) During the year Sajid Ltd., sold goods to Faheem LLC costing Rs. 2,000 at a 25%
mark up. All the goods are appearing in the inventory of Faheem LLC as at 30-6-14.
(iii) On June 1, 2014, Faheem LLC has borrowed Rs. 3,500 from Sajid Ltd., which needs
to be adjusted for exchange gain or loss as of June 30, 2014.
(iv) This is group policy to value the goodwill on full (or fair) value basis. No goodwill has
been impaired.
(v) Both the companies issued no shares since the date of acquisition nor paid any
dividend during the year ended June 30, 2014.
(vi) Exchange rate FCR to Re. 1 are as follows: FCR per Rupee
01-07-13 3.0
Average rate 4.5
01-06-14 5.4
30-06-14 6.0

Required:
Prepare consolidated statement of financial position of Sajid Ltd., as at June 30, 2014
using full (or fair) value method of goodwill. (Show all necessary calculations)

Q 9 Interior Company, incorporated in 2001 and listed in Karachi stock exchange, is

May 14 engaged in the import of items of home appliances and interior designing. The company
imports all items from a UAE based trading company. During 2012, due to increasing
competition, the management decided to acquire shares in the supplier to have
competitive advantage in local market. On July 1, 2012, Interior Company acquired
shares of Al-Jadeed whose functional currency is UAE Dirhams (Dhs). The company
purchased 7,500 shares @ Dhs 6.75 per share when the retained earnings of Al-Jadeed
were Dhs 30,000. The statements of financial position of the above companies at
June 30, 2013 were as follows:
Statements of Financial Position
Interior Co Al-Jadeed Inc.,
PKR Dhs
Assets
Non-current assets 2,500,000 55,000
Investment in Al-Jadeed Inc. 1,417,500
Current assets 1,100,000 17,000
5,017,500 72,000

Equity and Liabilities

Equity capital (Rs. 10/ Dhs 1) 1,200,000 10,000
Retained earnings 2,017,500 45,000
Long-term loan 1,000,000 2,000
Current liabilities 800,000 15,000
5,017,500 72,000

10
 Additional Information:
1 At the date of acquisition, the fair value of the net assets of Al-Jadeed Inc., was
Dhs 50,000. The increase in the fair value is attributable to the plant with a remaining
useful life of 5 years at the date of acquisition. This plant is still held by Al-Jadeed Inc.,
and was not revalued till reporting date.
2 During the year, Al-Jadeed Inc., sold some goods to Interior Company for Dhs 5000
@ 25% markup on cost. 30% of these goods remain unsold at reporting date.
3 On January 1, 2013, Interior Company made a short-term loan to Al-Jadeed Inc., of
Rs. 130,000. The liability is recorded by Al-Jadeed Inc., at the historic rate. The loan is
recorded within current assets and liabilities as appropriate.
4 The NCI interest is valued using the proportion of net assets method. No shares have
been issued since the date of acquisition. The presentational currency of the group is Rs
5 Exchange rates at different dates are as follows:
Pak Rs. per Dhs
July 1, 2012 28.00
Average rate 29.00
January 1, 2013 26.00
June 30, 2013 30.00
Required:
Prepare the Consolidated Statement of Financial Position of Interior Group as at 30-6-13.

Q 10 The following information has been extracted from draft financial statements of RY Limited
(RYL) and its investee companies, DT Limited (DTL) and GN Limited (GNL) for the year
ended 30 June 2015: RYL DTL GNL
------ Rs. in million ------ G $ in million
Sales 6,000 4,800 52
Cost of sales (3,200) (3,950) (32)
Gross profit 2,800 850 20
Operating costs (855) (595) (9)
Profit from operations 1,945 255 11
Investment income 1,400 26 6
Finance cost (233) (84) (2)
Profit before taxation 3,112 197 15
Income tax (568) (41) (3)
Profit after taxation 2,544 156 12

Ordinary share capital (Rs./G$ 10 each) 1,800 350 5

Retained earnings
At 1 July 2014 2,451 459 27
Profit for the year 2,544 156 12
Dividend paid* (300) (120) (8)
Shareholders’ equity 6,495 845 36
* Final dividend for the year ended 30 June 2014 paid in August 2014
Additional information:
(i) RYL bought 26.25 million shares in DTL on 1 October 2012 for Rs. 1,200 million
when DTL’s retained earnings were Rs. 240 million. At acquisition date the fair value
of DTL's net assets was equal to their carrying amount. There have been no changes
in the share capital since acquisition. The fair value of non-controlling interest on
acquisition was Rs. 340 million. Prior to 1 July 2014 impairments amounting to
Rs. 250 million had been recorded in DTL’s goodwill.
11
 (ii) On 1 January 2015, RYL sold 15.75 million shares in DTL for Rs. 1,950 million. The
fair value of RYL's remaining shares on this date was Rs. 1,300 million.
(iii) On 1 October 2014 RYL bought 400,000 shares in GNL, a company located overseas,
for G$ 50 million. Professional fees relating to the acquisition were Rs. 100 million
and these have been added to the cost of investment. At 1 October 2014, the fair value
of GNL’s net assets was equal to their carrying amount except a building whose fair
value exceeded the carrying amount by G$ 8 million. The building had a remaining
useful life of 8 years at the date of acquisition. The market price of GNL’s shares on
acquisition date was G$ 120.
(iv) Investment income appearing in RYL’s separate profit and loss statement includes
profit on sale of DTL’s shares and dividend received from DTL.
(v) RYL values its non-controlling interest on acquisition at fair value.
(vi) The exchange rates per G$ were as follows:
1 October 2014 Rs. 76
30 June 2015 Rs. 79
Average for October 2014 to June 2015 Rs. 78
It may be assumed that profits of all companies had accrued evenly during the year.

Required:
In accordance with the requirement of International Financial Reporting Standards, prepare
consolidated statement of comprehensive income of RYL for the year ended 30 June 2015.
(Ignore taxation) (23)

Q 11 White Limited (WL) has investments in Green Limited (GL) and Yellow Limited (YL). YL
is registered and operates in a foreign country and its functional currency is T$. Following
information has been extracted from financial statements of the three companies for the
year ended 31 December 2016:
WL GL YL
Assets ------ Rs. in million ------ T$ in million
Property, plant and equipment 14,900 3,000 325
Investment property 800
Investment in GL – at cost 4,200
Investment in YL – at cost 1,500 5,400
Current assets 6,660 2,500 305
27,260 11,700 630
Equity & liabilities
Share capital (Rs./T$ 10 each) 11,400 1,500 225
Retained earnings 9,500 7,900 210
Current liabilities 6,360 2,300 195
27,260 11,700 630
Interim dividend paid on 30 June 2016 - - 10%
Other information:
(i) Details of investments made by WL and GL are as follows:
No. of RE
Investment Cost of shares at acq
date Investor Investee investment acquired date
---------------- in million -------------------
1-Jan-15 WL GL Rs 4200 135 Rs 3500
1-Jan-16 WL YL T$ 75 4.5 T$ 50
1-Apr-16 GL YL T$ 270 18.0 T$ 90
12
 Fair values of each share of YL as on 1 January 2016 and 1 April 2016 were T$ 18 and
T$ 23 respectively.
(ii) In the books of WL and GL, there is no movement in investment in YL since the date
of acquisition except the difference arising due to foreign currency translation at year
end.
(iii) Investment property in GL was purchased on 1 January 2016 at a cost of Rs. 650
million and rented to WL at an annual rent of Rs. 60 million on the same date. The
property has a useful life of 20 years. Both companies follow a policy of measuring
their investment property at fair value and property, plant and equipment at revalued
amounts. Both companies also charge depreciation on straight line method.
(iv) The relevant exchange rates per T$ are as follows:
Average rate
1-Jan-16 1-Apr-16 30-Jun-16 31-Dec-16 (1 Apr to 31 Dec)
Rs. 16 Rs. 17 Rs. 18.5 Rs. 20 Rs. 18
(v) WL values the non-controlling interest at its proportionate share of the subsidiaries’ net
identifiable assets.
Required:
Prepare WL’s consolidated statement of financial position as on 31 December 2016 in
accordance with the requirements of International Financial Reporting Standards.
(Ignore taxation) (23)

Q 13 On January 01, 2018, Pharma Care Limited acquired shares in a UAE based distribution
Aug-19 company, Nutra Care Limited, by purchasing 75% shareholding. Pharma Care Limited is
engaged in manufacturing, marketing and distribution of Healthcare products in Pakistan.
The main purpose to acquire a UAE based company by Pharma Care Limited was to
extend its marketing and distribution operations in UAE. Pharma Care Limited paid the
following consideration:
• Issuance of 10,000 shares in Pharma Care Limited at market value of Rs. 33 each.
• Cash payment of Rs. 300,000.
• Contract to pay UAE Dirham (AED) 3,000 after 2 years.
Given below are the statements of financial position as at December 31, 2018:

Statements of Financial Position

As at December 31, 2018
Pharma Care Nutra Care
Limited (PKR) Limited (AED)
Non-current Assets
Fixed assets 14,107,000 16,250
Investment in Nutra Care Limited 710,100
Loan to Nutra Care Limited 165,000
Current assets 10,600,900 12,750
Total Assets 25,583,000 29,000

Share capital 10,000,000 13,000

Share premium 3,000,000
Retained earnings 2,583,000 10,000

Deferred consideration 80,100

Non-current liabilities 4,919,900 5,000
Current liabilities 5,000,000 1,000
Total Equity and Liabilities 25,583,000 29,000
13
Additional Information:
• On the date of acquisition, the retained earnings of Nutra Care Limited were AED 5,000
and there was an upward adjustment of AED 1,000 on plant and machinery having
remaining life of 5 years at the date of acquisition. The value of non-controlling interest
(NCI) at the date of acquisition was AED 7,500.

• During the year, Pharma Care Limited sold goods to Nutra Care Limited for Rs. 5 million
at 10% margin; 20% goods remained in the inventory of Nutra Care Limited at reporting date.

• On July 01, 2018, Pharma Care Limited care issued loan of Rs. 165,000 to Nutra Care
Limited, which Nutra Care Limited recorded at historical rate.

• Goodwill is to be calculated using full goodwill method. While 20% impairment is to

be accounted for according to impairment review.

• Pharma Care Limited recorded deferred consideration at historical rate using

applicable discount rate on deferred payment at 6% per annum.

• Exchange rates on different dates are as follows:

PKR per AED
January 01, 2018 30
Average rate 32
July 01, 2018 33
December 31, 2018 35

Required:
Prepare Group Statement of Financial Position as at December 31, 2018. 30

14