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ACCA Strategic Professional · Strategic Business Reporting (International) · Foreign transactions and entities

Orla Co (functional currency euro) bought plant on 1 March 20X5 for US$600,000, paid in full on that date at a rate of €1 = $1.20. At 31 December 20X5 the rate was €1 = $1.25 and the plant was carried at cost less depreciation. Which statement is correct under IAS 21 for the plant at the year end?

The plant remains at its historical-rate cost of €500,000 before depreciation. Non-monetary items measured at historical cost are not retranslated under IAS 21, so no exchange difference arises and the closing rate is not applied.

  1. AIt is retranslated at €480,000 with the difference in profit or loss
  2. BIt is retranslated at the closing rate with the difference in other comprehensive income
  3. CIt remains at the historical rate cost of €500,000 before depreciationCorrect
  4. DIt is translated at the average rate for the year

Explanation

Plant carried at cost is a non-monetary item and is kept at the rate on the transaction date: 600,000/1.20 = €500,000. Retranslation at 1.25 would give €480,000, but this is not permitted for items measured at historical cost. No exchange difference arises.

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