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Hey michaelperemobowei06, good to see you again. Question 1 a) Under IAS 21, foreign currency transactions are transactions denominated or requiring settlement in a foreign currency. Initially, they are recognized in the functional currency using the spot exchange rate at the date of the transaction. At each subsequent reporting date, monetary items (like receivables and payables) denominated in a foreign currency are retranslated using the closing rate. Non-monetary items measured at historical cost are not retranslated. Exchange differences arising on monetary items are recognized in profit or loss. b) Step 1: Initial transaction (1st April 2025) The machinery was purchased for 8,000 when the exchange rate was ₦1,250/. The Naira equivalent is 8,000 × ₦1,250/ = ₦10,000,000. |l|l|r|r| Date & Particulars & Debit (₦) & Credit (₦) \\ Apr 1, 2025 & Machinery & 10,000,000 & \\ & To Accounts Payable (Foreign Supplier) & & 10,000,000 \\ & (Being purchase of machinery on credit) & & \\ Step 2: Year-end adjustment (31st December 2025) The debt of 8,000 is revalued at the closing rate of ₦1,320/. New Naira value of debt = 8,000 × ₦1,320/ = ₦10,560,000. Exchange loss = ₦10,560,000 - ₦10,000,000 = ₦560,000. |l|l|r|r| Date & Particulars & Debit (₦) & Credit (₦) \\ Dec 31, 2025 & Exchange Loss & 560,000 & \\ & To Accounts Payable (Foreign Supplier) & & 560,000 \\ & (Being revaluation of foreign currency payable at year-end) & & \\ Step 3: Final settlement of the debt (31st January 2026) The debt of 8,000 is settled at the rate of ₦1,350/. Actual Naira paid = 8,000 × ₦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. |l|l|r|r| Date & Particulars & Debit (₦) & Credit (₦) \\ Jan 31, 2026 & Exchange Loss & 240,000 & \\ & To Accounts Payable (Foreign Supplier) & & 240,000 \\ & (Being revaluation of foreign currency payable at settlement date) & & \\ Jan 31, 2026 & Accounts Payable (Foreign Supplier) & 10,800,000 & \\ & To Cash/Bank & & 10,800,000 \\ & (Being final settlement of foreign currency debt) & & \\ Question 2 a) Step 1: Translate the financial statements of the subsidiary into Naira. • Assets: Translated at the closing rate (₦1,300/£). Assets = 25,000 × ₦1,300 = ₦32,500,000 • Liabilities: Translated at the closing rate (₦1,300/£). Liabilities = 10,000 × ₦1,300 = ₦13,000,000 • Share Capital: Translated at the historical rate (₦950/£). Share Capital = 8,000 × ₦950 = ₦7,600,000 • Revenue: Translated at the average rate (₦1,200/£). Revenue = 15,000 × ₦1,200 = ₦18,000,000 • Expenses: Translated at the average rate (₦1,200/£). Expenses = 6,000 × ₦1,200 = ₦7,200,000 • Net Profit: Net Profit = Revenue - Expenses = ₦18,000,000 - ₦7,200,000 = ₦10,800,000 b) Step 2: Calculate the foreign currency translation reserve (FCTR). The FCTR is the balancing figure in the translated balance sheet. Assets = Liabilities + Share Capital + Retained Earnings (Net Profit) + FCTR FCTR &= Translated Assets - Translated Liabilities - Translated Share Capital - Translated Net Profit \\ &= ₦32,500,000 - ₦13,000,000 - ₦7,600,000 - ₦10,800,000 \\ &= ₦32,500,000 - ₦31,400,000 \\ &= ₦1,100,000 c) Step 3: State the accounting treatment of the translation difference. 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. Send me the next one 📸