CH14. Exchange Rates

Question 1

What does IAS 21 include?

Answer 1

Changes in XR and

• how to include them in FS’s
• which XR to use
• how to report changes in XR

Question 2

What is functional currency?

Answer 2

When trading overseas we must express transactions in the entities OWN currency for reporting purposes.

Question 3

How do we initally recognise XR?

Answer 3

• in entities functional currency

- use spot rate @ date of transaction

Question 4

Double entry for initial recognition of purchase:

Answer 4

Dr purchases

Cr payables

Question 5

How do we subsequently recognise settled transactions?

Answer 5

• record @ spot rate @ date of settlement

- XR gain/loss is charged to the P&L as it arises

Question 6

Double entry for settled transaction recognition:

Answer 6

Dr payables

Cr cash

Question 7

Double entry for a favourable XR gain charged to the P&L:

Answer 7

Dr payables

Cr foreign XR gain (P+L Income)

Question 8

Double entry for a unfavourable XR loss charged to the P&L:

Answer 8

Dr foreign XR loss (P+L expense)

Cr payables

Question 9

What are the types of unsettled transactions?

Answer 9

1. Where we have monetary items

2. Where we have non-monetary items

Question 10

What are monetary items?

Answer 10

Have a fixed value upon settlement (cash, recievables, payables)

Question 11

How do we treat unsettled transactions with monetary items?

Answer 11

• retranslate using XR @ year end

- gain/loss charged to the P+L

Question 12

What are non-monetary items?

Answer 12

Do not have a fixed exchange value (PPE, inventory)

Question 13

If non-monetary items are measured at cost:

Answer 13

• translate using XR @ date of transaction
• do not translate @ year end
• no exchange gain or loss

Question 14

If non-monetary items are measures at fair value:

Answer 14

• translate using XR @ which fair value was determined