Chapter 14 - Foreign Currency Flashcards
Starndard dealing with foreign exchange
IAS 21
IAS 21
Governs the fair disclosure of gains and losses
IAS 21 Provisions
> > Objectives and definitions of functional and presentation currencies
> > Accounting for individual transactions in a foreign currency
> > Translating the Financial Statement of a foreign operation
Foreign Currency Activity
Individual foreign currency transaction
»>
Translate via Functional Currency
Foreign Operations >>> Translate via Presentation Currency >>> Consolidate into Group Accounts
Two types of foreign activities
1) individual transactions in foreign currencies
2) Foreign Operations
Individual Transactions in Foreign Currencies
> > Purchase or sales denominated in a foreign currency
> > Borrowing or Lending funds denominated in a foreign currency
> > Acquisitions or disposals denominated in a foreign currency
Foreign Operations in foreign currency
A foreign operation, subsidiary, Associate, joint Venture, or branch conducting activities in a foreign currency
Types of Currencies
1) Functional Currency
2) Foreign Currency
3) Local Currency
4) Presentation Currency
Functional Currency
Currency of the primary economic environment
Foreign Currency
Currency other than the functional currency
Local Currency
Currency of the country in which the foreign entity is located
Presentation Currency
Currency in which the financial statements are presented
Determining the Functional Currency
> Currency that influences selling prices
Currency of the country whose competition and regulation influence prices
Currency of funds used to finance operations
Currency in which receipts are normally kept
Currency that influences direct and operational costs
Determining the Presentation Currency
According to IAS 21, its all up to the company.
Why Functional and Presentation may be different:
> Transparency
Main Investors
Funding
Foreign currency translation rule
IAS 21: Foreign currency transactions must be recorded by translating the foreign currency amount into the entity’s Functional currency based:
1) on when a transaction occurred
2) if any currency gain or loss be recorded if the exchange rate is different when the transaction is paid for