5. Foreign exchange

Question 1

5. What is the closing rate and the spot rate?

Answer 1

Closing rate is the exchange rate at the reporting date

Spot rate is the rate at the time of the transaction

Question 2

5. What happens to exchange differences?

Answer 2

BS accounts - Gains & losses to P&L
Equity - Do not include the exchange difference in profit or loss. Instead, disclose the exchange the difference as a separate component of other comprehensive income

Question 3

5. How are monetary items and non-monetary reported?

Answer 3

Monetary
- Recognise at spot rate
- Re-translate at closing rate
- Gains & losses to P&L
Non Monetary
- Recognise at spot rate
- Do not re-translate at closing rate

Question 4

5. How are monetary items and non-monetary reported?

Answer 4

Monetary
- Recognise at spot rate
- Re-translate at closing rate
- Gains & losses to P&L
Non-Monetary
- Recognise at spot rate
- Do not re-translate at closing rate

Question 5

5. What is the presentation currency?

Answer 5

For example, a US company is a subsidiary of an Aus company. It would present its statements in AUD

Question 6

5. What is the functional currency?

Answer 6

For example, a US company is a subsidiary of an Aus company. Its functional currency is USD if most income and expenses are paid in USD