School of Accountancy

Department of Accounting

QUESTION BANK
CACN040
IAS21 THE EFFECTS OF CHANGES
IN FOREIGN EXCHANGE RATES
STUDENT NAME:
STUDENT NUMBER:

pg. 1
 QUESTIONS DESCRIPTION PAGE

Question 1 CACN021 – EXAM (2016) 3

Question 2 GAAP: GRADED QUESTIONS 5

Question 3 Unknown 6

Question 4 CACN022 TEST 2 (2021) 7

Question 5 CACN022 EXAM (2021) – QUESTION 3 9

Question 6 CACN022 SUPP EXAM (2021) – 10

QUESTION 3 (EXTRACT)

Question 7 CACN022 TEST 1 (2020) 11

Question 8 CACN022 TEST 2 (2020) 13

Question 9 CACN022 EXAM (2020) 14

Question 10 CACN030 16

NB! For more practice questions – please refer to the 2021 question papers.
On 4th year level module are integrated and as result it is very unlikely that you
will get a pure IAS 21 question.

pg. 2
 QUESTION 1
SOURCE: QUESTION 1 [CACN021 – EXAM (2016)]
TOTAL MARKS: 34 MARKS

You are the finance manager of Aowa Ltd, a manufacturer of carpets and a registered
VAT vendor. The company is located in Flora Park, in the Limpopo province. The
company has a 31 December financial reporting period end. You are currently
preparing the financial statements for the period ended 31 December 2015.

The details for property plant and equipment were as follows:

Categories Original Depreciation Depreciation Residual Date of

cost rates methods value acquisition
Land and ???? 5% Straight line R350 000 01/10/2013
Building
Motor R1 800 000 15% Straight line 0 01/01/2011
vehicles
Machinery ???? 20% Straight line 0 01/01/2015
Office ???? 10% Straight line 0 01/01/2011
equipment

Aowa Limited chooses to account for all its property,plant and equipment using the
cost model except for the office equipment which is accounted for using the revaluation
model.

Below is the detailed information pertaining to the property, plant and

equipment of Aowa Limited

Land and Buildings

The land and building were purchased on 1 October 2013 for R5 298 938. The transfer
and legal costs incurred for this transaction amounted to R350 000 which are not
included in the R5 298 938. Land is 40% of the total cost and the balance is for
buildings. The land and building were available for use on the date of purchase.
Land is not depreciated.

Motor vehicles

The acquisition on 1 January 2011 consisted of six vehicles which had the same value.
The vehicles were available for use on 01 January 2011. On 1 January 2015 one of
the vehicles was involved in an accident and after evaluation by a professional, it was
impaired by R50 000. On 31 May 2015 a new vehicle was acquired for R741 000
(including VAT) and was available for use on the same day.

pg. 3
Machinery

In order to meet the increased demand for the carpets, the company purchased a new
machine from Canada. The machine was purchased on 1 January 2015 at a cost of
US$250 000. It was ready for its intended use on 1 July 2015. It was loaded free on
board on 1 January 2015.

The company incurred the following additional costs on the purchase:

R
Shipping costs 44 000
Delivery costs 150 000
Installation fees 7 000
Dismantling costs (refer below) 150 000

The dismantling costs have already been present valued. The new machine has a
residual value of zero.

The exchange rate was as follows:

1 January 2015 (1 USD: R9.75)
1 July 2015 (1 USD: R8.95)

Office equipment

The company sold some equipment on 1 January 2015 for R360 000 and realised a
profit of R30 000. The remaining office equipment was revalued by an independent
sworn appraiser to have a fair value of R500 000 on 1 January 2015. The carrying
amount at 31 December 2014 of all the equipment was R750 000. All the equipment
was bought into use on 01 January 2011.
The entity chooses to account for the revaluation using the net replacement value
method.

REQUIRED:
a) Prepare the Property, plant and equipment note in the financial [34]
statements of Aowa Ltd for the period ended 31 December 2015,
comparatives are not required.

pg. 4
 QUESTION 2
SOURCE: GAAP: GRADED QUESTIONS
TOTAL MARKS: 15 MARKS

Spyware Limited is a South African company involved in private investigation and the
supply of related products. Spyware Limited imported a large batch of advanced
monitoring devices from an American company for a total invoice price of US$
100,000.
The advance monitoring devices were ordered from the American company on 25
March 20X5, were shipped on 15 July 20X5 and arrived and were unloaded in South
Africa on 25 July 20X5. The devices were shipped on delivery at terminal basis
(DAT).
The advance monitoring devices are to be sold via one of its retail outlets. On 31
December 20X5, 80% of the advanced monitoring devices had been sold (at a mark-
up of 20% on cost). Spyware Limited paid the American company on 2 February
20X6. Spyware Limited has a 31 December year end.

Date Spot rate

SA Rand: US Dollars

25 March 20X5 7,00: 1

15 July 20X5 7,20: 1
25 July 20X5 7,60: 1
31 December 20X5 7,10: 1
2 February 20X6 6,90: 1

REQUIRED:
Show all related journal entries in the books of Spyware Limited for its [34]
years ended 31 December 20X5 and 20X6.

pg. 5
QUESTION 3
SOURCE:
TOTAL MARKS: 10 MARKS

Baby Doll (Pty) Ltd is a company that exports handmade porcelain dolls to a number
of overseas companies. Baby Doll (Pty) Ltd.’s financial year ends on 30 June.
Recently they received a big order from an exclusive toy store in America.
Details of the transaction are as follows:
Date of invoice: 15 April 2010
Date risk and rewards of ownership passed to customer: 30 April 2010
Amount of invoice: US $ 85 000
Date the money was received: 31 July 2010
Relevant spot rates were:
15 April 2010 US$1 = R7.06
30 April 2010 US$1 = R6.98
30 June 2010 US$1 = R7.10
31 July 2010 US$1 = R7.02

REQUIRED:
Prepare the journals to record the above transactions in the books of [10]
Baby Doll (Pty) Ltd in the 2010 and 2011 financial years. (Journals
needs to be dated and narrations provided)
Show all calculations as marks will be awarded

pg. 6
QUESTION 4
SOURCE: CACN021 TEST 2 (2021)
TOTAL MARKS: 40 MARKS

Lustrous Stones Limited (hereafter “Lustrous Stones”) is a South African company

listed on the Johannesburg Stock Exchange. Lustrous Stones imports precious
stones and metals from Botswana and sells it to local customers. The functional
currency of the company is the South African Rand and its financial year end is 30
September.

On 1 August 2019 Lustrous Stones ordered inventory from their supplier in Botswana
for 400 000 Botswana Pula. The order was processed and the goods were
transported via road and arrived at the South African border shortly thereafter. The
process to clear customs took a few weeks and the goods were delivered to the
premises of Lustrous Stones on 1 November 2019. The risks and rewards associated
with the goods passed to Lustrous Stones on 1 November 2019.

Due to the Covid-10 lockdown in South Africa that commenced in March 2020 and the
subsequent restrictions on business activities, it took Lustrous Stones more than a
year to sell and distribute all of the goods imported. As a result of this delay, the
supplier’s account was only settled on 30 September 2021. No interest was charged
on the outstanding balance.

The goods were sold to South African customers as follows:

 75% sold to a customer on credit on 10 September 2020 (the customer settled

their account in full on 10 October 2020)
 25% sold to a customer on credit on 15 September 2021 (the customer settled
their account in full on 15 October 2021)

Sales prices for goods are calculated by adding 50% to the cost price.

The following exchange rates are relevant:

Date Spot Rate

1 August 2019 R1 = 0.65 Botswana Pula

30 September 2019 R1 = 0.70 Botswana Pula
1 November 2019 R1 = 0.50 Botswana Pula

pg. 7
30 September 2020 R1 = 0.40 Botswana Pula
30 September 2021 R1 = 0.80 Botswana Pula

The balance of Lustrous bank account was R 250 000 on 30 September 2021 and R
330 000 on 30 September 2020.

Additional information:

- Lustrous Stones makes use of a perpetual inventory system to account for

inventory.
- The implications of VAT and income tax may be ignored.

REQUIRED: MARKS
a) Provide all the journals to be processed in the records of [25]
Lustrous Stones for the financial years ended 30 September
2020 and 30 September 2021.

Communication skills: Dates and narrations are required. [1]

b) Prepare an extract of the Statement of Financial Position as at [7]

30 September 2021. The extract should reflect only line items
affected by the transactions as detailed above.
- Comparative figures ARE required.

c) Prepare an extract of the Statement of Profit or Loss and Other [7]

Comprehensive Income for the financial year ended 30
September 2021. The extract should reflect only line items
affected by the transactions as detailed above.
- Comparative figures ARE required.

pg. 8
QUESTION 5
SOURCE: CACN022 EXAM (2021) – QUESTION 3
TOTAL MARKS: 20

Beachhouse Limited (hereafter “Beachhouse”) is a South African company that owns

a number of properties in South Africa that is let out to foreigners. The company has
a 30 September financial year end.

Beachhouse borrowed $ 30 000 on 1 October 2020 from an American businessman

who has previously rented one of the properties owned by Beachhouse. The loan
bears interest at 10 %. The capital is payable in three equal payments of $ 12 065,
starting on 30 September 2021.

Beachhouse earned $ 50 000 during the 2021 financial year from renting a house to
a foreigner. The rental income was earned evenly during the year but no payments
had been received from the foreigner at year end.

The following exchange rates are applicable:

$1 = R

1 October 2020 15.100

30 September 2021 15.053

30 September 2022 15.136

30 September 2023 15.124

Average exchange rate for financial year ended 30 Sep 2021 15.0935

Average exchange rate for financial year ended 30 Sep 2022 15.0315

Additional information:

 The presentation currency of Beachhouse is the South African Rand (ZAR).

 The implications of VAT and income tax may be ignored.
 The question must be answered in compliance with International Financial
Reporting Standards (IFRS).

REQUIRED: MARKS

a) Provide the journals to account for the foreign transactions in the [19]
records of Beachhouse for the financial year ended 30 September
2021.
[1]
Communication skills: Dates and narrations are required.

pg. 9
QUESTION 6
SOURCE: CACN022 SUPP EXAM (2021) – QUESTION 3 (EXTRACT)
TOTAL MARKS: 12

Transaction 2

Sunflower received a call from a German collector of a rare plant on 15 January 2020.
The collector wanted to order 50 packets of seeds for the rare plant. Sunflower was
not sure if they could obtain so many seeds for the rare plant, but promised to look
into it.

On 1 February 2020 Sunflower managed to obtain the seeds and confirmed the order
with a total price of 10 000 Euro with the German customer. On 18 March 2020, the
seeds were shipped free-on-board from the Durban harbor to the German customer.
The parcel arrived at the German customer on 31 March 2020.

As part of the agreement, the customer agreed to pay the full price for the seeds in
Euro on 30 September 2020. It is the hope of the manager of Sunflower that the Euro
will be stronger on that date, and therefore Sunflower will receive a larger amount than
if the customer settled their account immediately.

The following exchange rates were applicable:

Date 1 Euro = R

15 January 2020 19.80

1 February 2020 19.78
18 March 2020 19.75
31 March 2020 19.25
30 September 2020 18.90
31 March 2021 18.70

REQUIRED: MARKS

b) Prepare the journal entries relating to transaction 2 in the accounting [11]

records of Sunflower for the financial years ended 31 March 2020
and 31 March 2021.

Communication skills: Dates and narrations are required. [1]

QUESTION 7

pg. 10
SOURCE: CACN022 TEST 1 (2020)
TOTAL MARKS: 15

Toughwheels Limited (hereafter “Toughwheels”), is a South African company that

manufactures tyres. You are responsible for compiling the annual financial statements
of Toughwheels for the financial year ended 31 May 2020. You are under great
pressure to complete the financial statements since it should already have been
completed earlier in the year. Unexpected delays were experienced due to the Covid-
19 Lockdown that resulted in the annual financial statements still not being completed.

The following information is available:

Purchase of machines from foreign supplier

During the current financial year (before lockdown), Toughwheels purchased 5

machines to add to their rubber manufacturing plant.

These machines are not available in South Africa and had to be imported from a
company in the USA at a cost of USD 44 000 each. The machines were ordered on
a free on board basis and the following information relating to the order is available:

Date of order from the supplier: 25 June 2019

Date of shipping (Free on Board): 16 July 2019
Date of arrival in South Africa: 30 July 2019

The machines were finally available for use on 1 September 2019 and were first
brought into use on 1 October 2019. The machines have a residual value of R 20 000
and a useful life of 10 years. It is the policy of the entity to provide depreciation on the
straight-line method.

Toughwheels Ltd paid the foreign creditor on 31 August 2019.

The following spot rates were applicable:

Date Spot rate US Dollar: SA Rand

25 June 2019 1 : 9.00
16 July 2019 1 : 9.25
30 July 2019 1 : 9.60
31 August 2019 1 : 9.90
1 September 2019 1 : 9.91
31 December 2019 1 : 9.99

pg. 11
REQUIRED: MARKS
a) Prepare all journal entries relating to the machines purchased from [15]
the foreign supplier in the records of Toughwheels Ltd for the financial
year ended 31 May 2020.

pg. 12
QUESTION 8
SOURCE: CACN022 TEST 2 (2020)
TOTAL MARKS: 20

Tech Warehouse Import Limited (hereafter “Tech Warehouse”) is a South African

company that manufactures, imports and sells computers and other technological
equipment across the country. Tech Warehouse has a 31 July financial year end. The
functional currency of Tech Warehouse is the South African Rand (R).

On 1 March 2020, Tech Warehouse placed an order for headphones to be imported

from the United States of America (USA) at a total cost of US$ 80 000. The
headphones were shipped free-on-board on 1 May 2020. Due to various worldwide
shipping restrictions as a result of the Corona-virus, the headphones did not arrive in
South Africa until 1 August 2020.

On 31 August 2020, Tech Warehouse paid the amount owing to the USA supplier in
full. These are not regarded to be abnormal credit terms in the industry and, hence,
no interest is charged by the USA supplier.

Spot rate as at: Spot rate: US$1 =

1 March 2020 R15.68
1 May 2020 R15.78
31 May 2020 R15.18
30 June 2020 R15.94
31 July 2020 R15.47
1 August 2020 R15.53
31 August 2020 R15.99
31 July 2021 R 17.00

REQUIRED: MARKS
a) Prepare all relevant journal entries to correctly account for the given [13]
transactions in the accounting records of Tech Warehouse for the
financial year ended 31 July 2020 and ending 31 July 2021.

Dates and narrations are required.

[2]
b) Provide the additional journal entry that would have been required for [5]
the financial year ended 31 July 2021 if the foreign creditor’s account
was paid on 5 August 2021 and explain why this journal would be
required.

pg. 13
QUESTION 9
SOURCE: CACN022 EXAM (2020)
TOTAL MARKS: 20

Cakebatter Ltd (hereafter “Cakebatter”) is a South African company who bakes and
sells cakes and other pastries. The functional currency of the company is the South
African Rand and its financial year end is 31 December. Some of Cakebatter’s baking
equipment reached the end of its useful life and had to be replaced.

On 30 September 2019 an order was placed with PastryCo Ltd (hereafter “PastryCo”),
an American company specialising in the baking equipment needed by Cakebatter to
replace their batter mixing equipment. Cakebatter uses the batter mixing machine to
ensure that the batter of all the baked goods that they sell is evenly mixed.

PastryCo confirmed on 31 October 2019 that the order has been approved. The
equipment was shipped free on board on 30 November 2019. The invoice amount was
$200 000, payable on 31 January 2020. Due to some small adjustments that had to
be made to the equipment, the equipment became available for use on 1 February
2020. The useful life of the machinery is 5 years and the residual value is R 50 000. It
is the company’s policy to depreciate machinery using the straight line method over
its useful life.

Due to some cash flow problems, Cakebatter was only able to pay $ 150 000 on 31
January 2020. The remainder of the outstanding balance was settled on 30 April
2020. No interest was charged by PastryCo.

The following exchange rates are relevant:

Date Spot rate

$:R
30 September 2019 1: 15.00
31 October 2019 1: 15.42
30 November 2019 1 :15.55
31 December 2019 1 :15.70
31 January 2020 1: 15.83
28 February 2020 1: 15.88
31 March 2020 1: 15.90
30 April 2020 1: 15.65
31 May 2020 1: 15.87
31 December 2020 1: 15.92

You are the accountant of Cakebatter responsible for compiling the draft annual
financial statements for the financial year ended 31 December 2019. After reading the
draft annual financial statements on 6 May 2020 the operating director (who does not
have a background in accounting) had some concerns regarding the correctness of
some of the figures. He noted that the amount payable to the foreign creditor as
reflected on the annual financial statements does not agree to the amount that was
paid to the foreign creditor.

pg. 14
 MARKS
REQUIRED:
a) Prepare all the relevant journal entries to account for the above [14]
transactions for the financial year ended 31 December 2020.

 Dates and narrations are required.

b) Prepare a memorandum to the operating director in which you explain [6]
why there was a difference between the amount recorded as payable
to the foreign creditor in the annual financial statements for the
financial year ended 31 December 2019 and the amount that was
actually paid to the foreign creditor.

pg. 15
QUESTION 10
SOURCE: CACN030
TOTAL MARKS: 20

Building Blocks (Pty) Ltd is a South African company specializing in manufacturing

and selling wooden building blocks to Toy stores all across South Africa. Building
Blocks (Pty) Ltd has a 30 June year end.
During 2016 Building Blocks (Pty) Ltd needed funds to expand their manufacturing
plant as the demand for their wooden blocks has increase significantly. To do this
they decided to buy an additional building next to their current one and to split the
“block manufacturing” section from the “painting and finishing” section. Instead of
going to a South African Bank, Building Blocks (Pty) Ltd chose to obtain a foreign loan
to finance the purchase of the new building. (The full loan was used to purchase the
building)
Detail of the loan is as follows:
Date the loan was finalized and the money was received: 1 July 2016
Interest rate: 8% per annum
Period: 15 years
Amount of loan (present value): £100 000
Instalment: payable annually in
arrears on 30 June
each year
Relevant spot rates were:
1 July 2016 £1 = R10.05
30 June 2017 £1 = R9.96
30 June 2018 £1 = R11.02
30 June 2019 £1 = R10.61
Average rates were:
1 July 2016 to 30 June 2017 £1 = R10.01
1 July 2017 to 30 June 2018 £1 = R10.49
1 July 2018 to 30 June 2019 £1 = R10.82
MARKS
REQUIRED:
a) Prepare the necessary journal entries to record the foreign exchange [14]
transactions in the accounting records of Building Blocks (Pty) Ltd in
the 2017, 2018 and 2019 financial years.
(Ignore taxation and IAS23: Borrowing cost implications)
Show all calculations as marks will be awarded.

pg. 16