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QUESTION 1 (28 marks) Delta is an entity which prepares financial statements to 31 March each year. The functional currency of Delta is the dollar
QUESTION 1 (28 marks) Delta is an entity which prepares financial statements to 31 March each year. The functional currency of Delta is the dollar ($). The following events have occurred which are relevant to the year ended 31 March 2018. On February 2018, Delta purchased some inventory from a supplier whose functional currency was the dinar. The total purchase price was 3.6 million dinars. The term of the purchase were that Delta would pay for the goods in two instalments. The first instalment payment of 1260 000 dinars was due on 15 March 2018 and the second payment of 2 340 000 dinars on 30 April 2018. Both payments were made on the due dates. Delta did not undertake any activities to hedge its currency exposure arising under this transaction. Delta sold 60% of this inventory prior to 31 March 2018 for a total sale price of $480 000. All sales proceeds were receivable in $, after 31 March 2018. Delta sold the remaining inventory for sales proceeds which were in excess of their costs. Relevant exchange rates are as follows: - - - 1 February 2018-6.0 dinars to $1 15 March 2018-6.3 dinars to $1 31 March 2018 - 6.4 dinars to $1 Required (a) Discuss in detail what is meant by the concept of an entity's functional currency and how it may be determined in accordance with IAS 21, the Effects of changes in foreign Exchange rates (5 marks) (b) Show by means of journal entries how the above events would be reported in the financial statements of Delta for the year ended 31 March 2018 (10 marks)
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