IAS 21 - THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES Question 1 Firee Ltd has a year end of 28 February and a functional currency of Rands. On 1 March 2016 Firee Ltd took out a loan from UK company for 350 00. Interest is payable annually in arrears on 28 February each year at a rate of 5% per annum. The loan is repayable in full on 28 February 2018. There have been no repayments on the loan before the 28 February 2018. Date R/ exchange rate 1 March 2016 R21.77 28 February 2017 R16.25 28 February 2018 R16.77 Average rate 2017 R16.15 Average rate 2018 R16.20 REQUIRED: 1.1 Calculate the exchange differences arising on the loan balance from initial recognition on 1 March 2016 to settlement on 28 February 2018. 1.2 Calculate the interest accruals and interest payments for February 2017 and February 2018. Show any exchange differences arising on payment. Indicate whether the difference is a gain or loss. 1.3 Record the journal entry to recognize the loan on 1 March 2016. 1.4 Record the journal entries that would be required on 28 February 2017 with respect to the loan and interest.