Ch. 18 FCT

Question 1

What is functional currency?

Answer 1

It is the currency that is primarily used in the day-to-day operations.

Question 2

How do you determine the functional currency?

Answer 2

1) Primary factors
- currency influencing sales prices for goods and services
- currency of country whose competitive forces and regulations determine sale prices
- currency mainly influencing input costs

Secondary factors (if primary indicators cannot be determined)
- currency in which funds/receipts are generated from financing activities, and retained from operating activities

Question 3

What are the three steps in recording foreign currency?

Answer 3

1) Determine the functional currency
2) initial measurement
3) subsequent measurement

Question 4

How are foreign currency transactions inputted?

Answer 4

It is at the spot rate at the date of the transaction - average rate may also be used if it occurs evenly over a period

Question 5

How are FCT measured subsequently?

Answer 5

If they’re monetary - transaction at the closing exchange rate at the balance sheet. Gains or losses are recognized in income

If it is non-monetary - measured at historical cost (not updated), or it is revaluated at the revaluation date - this is not stated what that date is though

Question 6

How is derecognition of assets or liabilities incurred treated?

Answer 6

They’re derecognized at the spot rate at the date of derecognition.