CONTINUOUS ASSESSMENT QUESTIONS (CA) Question 1 A Nigerian company purchased machinery worth 8,000 from a foreign supplier on credit on 1st April 2025 when the exchange rate was ₦1,250/. At 31st December 2025, the exchange rate was ₦1,320/. The company finally settled the debt on 31st January 2026 when the exchange rate was ₦1,350/. Required: a. Explain the concept of foreign currency transactions under IAS 21. b. Prepare the necessary journal entries to record: The initial transaction The year-end adjustment The final settlement of the debt --- Question 2 XYZ Plc, a Nigerian parent company, has a foreign subsidiary in the United Kingdom. The subsidiary provided the following balances as at 31st December 2025: Assets: £25,000 Liabilities: £10,000 Share Capital: £8,000 (issued when exchange rate was ₦950/£) Revenue: £15,000 Expenses: £6,000 The following exchange rates are available: Closing rate: ₦1,300/£ Average rate: ₦1,200/£ Required: a. Translate the financial statements of the subsidiary into naira. b. Calculate the foreign currency translation reserve. c. State the accounting treatment of the translation difference in accordance with IAS 21.

The machinery was purchased for $8,000 when the exchange rate was ₦1,250/$.
The Naira equivalent is $8,000 \times ₦1,250/$ = ₦10,000,000.

The debt of 8,000 is revalued at the closing rate of ₦1,320/$. New Naira value of debt =$8,000 \times ₦1,320/$ = ₦10,560,000.
Exchange loss = ₦10,560,000 - ₦10,000,000 = ₦560,000.

The debt of 8,000 is settled at the rate of ₦1,350/$. Actual Naira paid =$8,000 \times ₦1,350/$ = ₦10,800,000.
Carrying amount of debt before settlement = ₦10,000,000 (initial) + ₦560,000 (loss) = ₦10,560,000.
Additional exchange loss = ₦10,800,000 - ₦10,560,000 = ₦240,000.

Question 2

a)

• Assets: Translated at the closing rate (₦1,300/£). $$\text{Assets} = \pounds25,000 \times \frac{\text{₦}1,300}{\pounds} = \text{₦}32,500,000$$
• Liabilities: Translated at the closing rate (₦1,300/£). $$\text{Liabilities} = \pounds10,000 \times \frac{\text{₦}1,300}{\pounds} = \text{₦}13,000,000$$
• Share Capital: Translated at the historical rate (₦950/£). $$\text{Share Capital} = \pounds8,000 \times \frac{\text{₦}950}{\pounds} = \text{₦}7,600,000$$
• Revenue: Translated at the average rate (₦1,200/£). $$\text{Revenue} = \pounds15,000 \times \frac{\text{₦}1,200}{\pounds} = \text{₦}18,000,000$$
• Expenses: Translated at the average rate (₦1,200/£). $$\text{Expenses} = \pounds6,000 \times \frac{\text{₦}1,200}{\pounds} = \text{₦}7,200,000$$
• Net Profit: $$\text{Net Profit} = \text{Revenue} - \text{Expenses} = \text{₦}18,000,000 - \text{₦}7,200,000 = \text{₦}10,800,000$$

b)

The FCTR is the balancing figure in the translated balance sheet.
Assets = Liabilities + Share Capital + Retained Earnings (Net Profit) + FCTR

c)

In accordance with IAS 21, translation differences arising from the translation of the financial statements of a foreign operation (like a subsidiary) are recognized in other comprehensive income (OCI). These differences are accumulated in a separate component of equity called the foreign currency translation reserve (FCTR). They are subsequently reclassified to profit or loss only upon the disposal or partial disposal of the foreign operation.