14 Foreign Currency Flashcards
how should foreign currency and financial statements be translated?
Foreign currency transactions and financial statements should be translated at rates that are compatible with the impact of their rate changes on cash flows and which also maintain the true and fair view of results required.
what is functional currency
This is the main currency in which an entity operates (ie the currency of their primary economic environment).
It is used for measurement in the financial statements. Any other currencies are treated as foreign currencies.
what is presentation currency
This can be any currency that the entity chooses, there are specific rules which apply when translating from functional currency to presentation currency. The translation of foreign operations is the same as for functional currency.
what is the historic rate
the rate the transaction occured
what is the closing rate
the rate at the year end
what is the average rate
the average rate throughout the whole year
what is spot rate
the rate at the date of the transaction
what is the initial treatment
Transactions are translated at historic rate
how are settled transactions treated
Settlement is translated at spot rate
how are unsettled monetary transactions treated
translated at closing rate
how are unsettled non-monetary transactions treated
Assets and liabilities: items remain translated at historic rate when cost was first measured
gains./losses from Differences arising from trading traansactions go where in P/L
Recognised in “Other income/expenses”
gains./losses from Differences from financing transactions go where in P/L
recognised in Finance income/costs
what are the primary and secondary factors in functional currency
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