08-20-2009, 03:49 AM
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
âInventories 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.â
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
âWhen 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.â
Regards,
Nabeel Anwer
<b><u>Question-1</u></b>
First of all i would like to refer you to para 8 of IAS-2 which clearly states
âInventories 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.â
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
âWhen 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.â
Regards,
Nabeel Anwer
