Page 5 - 15. COMPILER QB - INDAS 21

Goodwill (bal. fig.) Dr. 1.4 million
To Bank 17.5 million
To NCI (23x30%) 6.9 million

Thus, goodwill on reporting date would be 1.4 million EURO x Rs.84 = Rs. 117.6 million

(ii)
Particulars EURO in million
Sale price of Inventory 4.20
Un-realised Profit [a] 1.80

Exchange rate as on date of purchase of Inventory [b] - Rs. 83/Euro
Unrealized Profit to be eliminated [a x b] - Rs. 149.40 million
As per Ind AS 21 “income and expenses for each statement of profit and loss presented (i.e. including
comparatives) shall be translated at exchange rates at the dates of the transactions”.
In the given case, purchase of inventory is an expense item shown in the statement profit and loss account.

Hence, the exchange rate on the date of purchase of inventory is taken for calculation of unrealized profit
which is to be eliminated on the event of consolidation.

Q5. (May 20 & Newly Added in ICAI Module)

On 1st April, 20X1, Makers Ltd. raised a long term loan from foreign investors. The investors subscribed for 6
million Foreign Currency (FCY) loan notes at par. It incurred incremental issue costs of FCY 2,00,000. Interest
of FCY 6,00,000 is payable annually on 31st March, starting from 31st March, 20X2. The loan is repayable in

FCY on 31st March, 20X7 at a premium and the effective annual interest rate implicit in the loan is 12%. The
appropriate measurement basis for this loan is amortised cost. Relevant exchange rates are as follows:
- 1st April, 20X1 - FCY 1 = Rs 2.50.
- 31st March, 20X2 – FCY 1 = Rs 2.75.
- Average rate for the year ended 31st Match, 20X2 – FCY 1 = Rs 2.42. The functional currency of the

group is Indian Rupee.
What would be the appropriate accounting treatment for the foreign currency loan in the books of Makers Ltd.
for the FY 20X1-20X2? Calculate the initial measurement amount for the loan, finance cost for the year,
closing balance and exchange gain/loss.

SOLUTION
Initial carrying amount of loan in books
Loan amount received = 60,00,000 FCY

Less: Incremental issue costs = 2,00,000 FCY
58,00,000 FCY

Ind AS 21, “The Effect of Changes in Foreign Exchange Rates” states that foreign currency transactions are
initially recorded at the rate of exchange in force when the transaction was first recognized.

Loan to be converted in INR = 58,00,000 FCY x Rs 2.50/FCY = Rs 1,45,00,000
Therefore, the loan would initially be recorded at Rs 1,45,00,000.
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