IAS 21 âThe effects of changes in Foreign Exchange Ratesâ recommends that an entity translates foreign currency items/net investment into its functional currency and reports the effects of such translation. Required: (i) Define and briefly explain the functional currency concept. (3 marks) (ii) Briefly outline the translation requirements for reporting a foreign currency business transaction and for reporting the results of an investment in a foreign operation. (6 marks)(b) The following balances were extracted from the books lootex Ltd. for the year ended 30 September 2000.Sh. â000âPurchase of equipment7,500Purchase of raw materials19,655Depreciation expense675Interest expense350Investment income310Closing stock of raw materials3,400Minority interest in the profits of the subsidiary200Ordinary dividends340Value added tax â included in the turnover8,000Wages, salaries and pension5,000Current tax (corporation tax)770Turnover32,135Required:Value added statement. (9 marks) (Total: 18 marks)
