Question

You are the financial controller of Omega, a listed company which prepares consolidated financial statements in$$accordance with International Financial Reporting Standards $($IFRS$).$ The year end of Omega is $31$ March and its

functional currency is the $$.$ Your managing director, who is not an accountant, has recently prepared a list of$$questions for you concerning current issues relevant to Omega:

As you know, on $1$ January $2014$ we purchased a machine for $2$ million kroner. At that date the exchange rate was $$1=10$ kroner. We dont have to pay for this purchase until $30$ June $2014.$ The kroner strengthened against the $ in the three months following purchase and by $31$ March $2014$ the exchange rate was $$1=8$ kroner. I thought these exchange fluctuations wouldnt affect our financial statements because we have an asset and a liability denominated in kroner which was initially the same amount. Were depreciating this machine over four years so the future year$-$end amounts wont be the same, of course. Something I heard at a seminar, but didnt really grasp, made me think I could be mistaken. Please explain the impact of this transaction on our financial statements for the year ended $31$ March $2014.$