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Case Study 3

The entity's functional currency is the US dollar but it wishes to present its financial statements in euros. To do so, it must translate the financial statements from dollars to euros using the applicable exchange rates, which are provided. The opening share capital of $2 million is translated to euros at the closing rate of $1 = €2. The income statement items are translated using the average exchange rate of $1 = €1.5. The year-end balance sheet items are translated at the closing rate.

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172 views1 page

Case Study 3

The entity's functional currency is the US dollar but it wishes to present its financial statements in euros. To do so, it must translate the financial statements from dollars to euros using the applicable exchange rates, which are provided. The opening share capital of $2 million is translated to euros at the closing rate of $1 = €2. The income statement items are translated using the average exchange rate of $1 = €1.5. The year-end balance sheet items are translated at the closing rate.

Uploaded by

Babu babu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Accounting for Foreign Exchange (IAS-21)

An entity commenced business on January 1, 20X6, with an opening share capital of $2 million.
The income statement and closing balance sheet follow:

Income Statement for the year ended December 31, 20X6

Particulars $m
Revenue 32
Cost of sales (10)
Gross profit 22
Distribution costs (8)
Administrative expenses (2)
Profit before tax 12
Tax expense (4)
Profit for period 8
Balance Sheet at December 31, 20X6

Particulars $m
Share capital 2
Retained earnings 8
Total equity 10
Trade payables 4
Total equity and liabilities 14
Land (no depreciable) acquired December 31, 20X6 8
Inventories 4
Trade receivables 2
Total assets 14

The functional currency is the dollar, but the entity wishes to present its financial statements
using the euro as its presentational currency. The entity translates the opening share capital at the
closing rate. The exchange rates in the period were

$1 =

 January 1, 20X6 €1
 December 31, 20X6 €2
 Average rate €1.5

Required:

Translate the financial statements from the functional currency to the presentational currency.

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