Post Reply 
 
Thread Rating:
  • 0 Votes - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
General Accounting Questions
08-19-2009, 12:32 AM
Post: #1
General Accounting Questions
Dear all

1- The main object of the company is building housing societies on purchased lands and sale. How to treat the purchase of land.

2- A company is the branch of foreign company in Pakistan. It receives funds from its head office in foreign currency, expenditures are incurred and paid mainly in Rupees. Financial statements are presented in Rupees.
a) is it mandatory to present FS in Rupees
b) whether the disclosure that presentation and functional currencies are different is compulsory.

Regards

Waqas Shabbir
Visit this user's website Find all posts by this user
Quote this message in a reply
08-19-2009, 11:32 PM
Post: #2
 
Would some body please help?

Kamran bhai where are you

Faisal, Bilal and awais, I think you all can help at least
Visit this user's website Find all posts by this user
Quote this message in a reply
08-20-2009, 03:49 AM
Post: #3
 
AoA

<b><u>Question-1</u></b>
First of all i would like to refer you to para 8 of IAS-2 which clearly states

“Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by a retailer and held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the entity and include materials and supplies awaiting use in the production process.”

As the main object of company to develop housing societies on purchased land, the land shall be classified as inventory item and may be further sub-classified as Work in process/Development Properties.

However if company has purchased some piece of land and management has no intention to develop housing society in foreseeable future then it should be classified as Investment Property as per IAS-40.


<b><u>Question-2</u></b>

<u>Recognition of Foreign Currency Transations</u>

Refer to para 21 of IAS-21

"A foreign currency transaction shall be recorded, on initial recognition in the <b>functional currency</b>, by applying to the foreign currency amount the spot exchange rate between the <b>functional currency</b> and the <b>foreign currency</b> at the date of the transaction."

In your case presentation currency and functional currency seems to be PKR. All expenses incurred in PKR shall be denominated in PKR (i.e. functional currency).

<u>Presentation of Financial Statements</u>
As entity operates in such an economic environment where PKR is prevailing currency, PKR would be function currency of entity. However IAS-21 has stated through Para 9 to 14 various factors to be considered while determining functional currency of an entity.

Now it the management decision whether to present financial statement in functional currency or any other currency which is termed as presentation currency (may or may not be functional currency). Under such case a disclosure is required by IAS-1 under Para 51 for presentation currency.


If financial statements are presented in currency other that its functional currency then a disclosure is required under Para 53 of IAS-21 which states

“When the presentation currency is different from the functional currency, that fact shall be stated, together with disclosure of the functional currency and the reason for using a different resentation currency.”


Regards,
Nabeel Anwer
Visit this user's website Find all posts by this user
Quote this message in a reply
08-20-2009, 04:35 AM
Post: #4
 
Dear,

The followings are the respective responses to your queries.

<b>Query-1</b>

In such a case, property should be treated as Inventory under IAS 2.

The said land may not be treated as Investment Property under IAS 40 since the aforesaid case does not qualify as Investment Property as defined in IAS 40, Defination specifically refrains to recognize those properties as Investment properties, which are to be used for production or supply of goods and services or for sale in the ordinary course of business.
In this case, land is being held in the ordinary course of company's business. so does not come under the ambit of Investment Properties.

In this particular case, Land may also not be treated as a "Non Current Asset Held For Sale" as per IFRS 5, since it is contrary to the "2.1 of IFRS 5", which reveals (Partly being quoted) "The asset must be available for immediate sale in its present condition and its sale must be highly probable", since asset is neither available for immediate sale nor (will be available) in the same condition.


<b>Query-2</b>

A - The functional currency of the entity is rupees, however, as per point number 6.1 of IAS 21, which reveals that, " An entity can present its financial statements in any currency.If the presentation currency is different from the functional currency, the financial statements are retranslated into presentation currency".
In the light of the above, Rupees is not mandatory currency for presentation.

B - When the presentation currency of the entity is different from functional currency then the fact is required to be disclosed forthwith mentioning its functional currency, furthermore, reasons for using different presentation currency to that of its functional currency is also required to be disclosed.

Queries will be appreciated, however not guaranteed to be responded timely.

Best Regards,

Faisal
Visit this user's website Find all posts by this user
Quote this message in a reply
08-20-2009, 04:40 AM
Post: #5
 
I could not have read the response of Nabeelanwer, hence responded.
However, had his reply been seen by me, then i would not have replied, since he has replied correctly.

Regards,
Visit this user's website Find all posts by this user
Quote this message in a reply
08-21-2009, 01:02 AM
Post: #6
 
Thanks alot to you both

I have one confusion, if you please reconsider and specifically clear.

As the company receives funds in foreign currency and incur expenditure in Pak Rupees. Isn't in this case the functional and presentation currencies different?

Regards
Visit this user's website Find all posts by this user
Quote this message in a reply
08-21-2009, 03:12 PM
Post: #7
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by wsafca</i>
<br />Thanks alot to you both

I have one confusion, if you please reconsider and specifically clear.

As the company receives funds in foreign currency and incur expenditure in Pak Rupees. Isn't in this case the functional and presentation currencies different?

Regards
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">


AoA

Particularly in this case functional currency is PKR (i.e. as entity operates in such an economic environment where PKR is prevailed) and presentation currency is ofcourse PKR as management intention to present financials in PKR. So there'snt any difference.

Regards,
Nabeel Anwer
Visit this user's website Find all posts by this user
Quote this message in a reply
08-22-2009, 12:25 AM
Post: #8
 
IAS 21 somewhere mentions that

The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash.

I think in the present scenario company is generating cash in foreign currency, USD

Isn't then the functional currency be considerd as USD?
Visit this user's website Find all posts by this user
Quote this message in a reply
08-22-2009, 03:03 AM
Post: #9
 
Can any body please explain me, What are the "Loan based Project" and "Equity based Projects".
I am asking in context of Company Isuuance of share capital rules
Visit this user's website Find all posts by this user
Quote this message in a reply
Post Reply 


Forum Jump:


User(s) browsing this thread: 1 Guest(s)