Question 2 (IAS 21) (25 marks) Sugar Limited is a mining company operating across Europe and the Middle East. Sugars functional currency is the Euro ().

On 25th March 2015, the directors came across classified information regarding the discovery of diamonds in Guatemala. Sugar Limited approached the two main banks in Guatemala, Barclays Bank and Standard Bank, for a loan that would fund a start-up mine in the area. The local currency in Guatemala is the Guatemalan Guenzel (G).

Barclays bank offered a larger amount but at a relatively high 12% interest rate whereas after a month of negotiations, Standard bank agreed to drop its rates to 8%, albert on a lower sum. Sugar limited signed a loan agreement with Standard Bank, the terms of which are as follows:

Terms of the standard bank loan ? Loan amount, effective 1 June 2015 G 48 000 000

? Interest rate, capitalised annually on 31 May 8%

? Loan repayments Annually , due on 31 May

? Annual loan repayments to include interest for the preceding 12 months plus a set capital amount of: G 960 000

? Repayment term 50 years

Related exchange rates as follows

Date Exchange Rates Euro 1: Guenzel (G)

01 June 2015 1: 8.0

31 March 2016 1: 6.0

31 May 2016 1: 7.5

31 March 2017 1: 7.8

Average for 1 June 2015 to 31 March 2016 1:7.0

Average for 1 April to 2016 to 31 May 2016 1: 7.2

Average for 1 June 2016 to 31 March 2017 1: 7.2

Required Prepare the necessary journal entries in Sugar Limiteds general journal for its year ended 31 March 2016 and 31 March 2017. (Ignore tax but show all your workings)