On 1 August 2018 Charlie Ltd, whose functional currency is the cedi, bought a property in Morocco for DH40 million. The property had a 20-year useful economic life with no residual value estimated. On 31 July 2019, the property was revalued to DH45 million.
Exchange rates were:
1 January 2018 GH¢1 = DH 1.32
1 August 2018 GH¢1 = DH 1.25
31 July 2019 GH¢1 = DH 1.125
Required:
In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates and IAS 16: Property, Plant & Equipment how much should be recognised in Statement of Profit or Loss and Other Comprehensive Income for year ended 31 July 2019? (5 marks)
View Solution
Under IAS 21 an asset purchased in foreign currency is translated into the functional currency of the entity at the date of purchase or revaluation and not restated otherwise. (1 mark)
Hence there are two movements here:
Cost of property: DH40 million / 1.25 = GH¢32 million (1 mark)
Depreciation for year: GH¢32 million / 20 years = GH¢1.6 million (charged to profit or loss) (1 mark)
Carrying value at year end: GH¢30.4 million
Revalued amount: DH¢45 million / 1.125 = GH¢40 million (1 mark)
Revaluation gain: (40m – 30.4m) = GH¢9.6 million (credited to OCI) (1 mark)