Exchange rates and related parties ch21 Flashcards
Where does gains/losses end up that stem from exchange rate TRANSLATION and TRANSACTIONS
Translations = OCI
Transactions = Comprehensible income (profit/loss)
Why is disclosures of related parties necessary?
Knowledge of a company’s related party transaction and relations may affect an investor’s assessment of an entity’s performance and prospects
What should an entity disclose regarding related parties?
THe existence of related parties as well as transactions made with related parties.
Existence of related parties may stem from…?
Control/influence, associates & joint arrangements AND management and personal relationships
Not necessarily related parties if…:
- Two entities share a common director. 2. Two venturers that have a common JV. 3. Providers of finance or government departments simly by virtue of normal dealings with an entity. 4. Customer, supplier, client or agent merely due to the volume of business or on whom the entity is economically dependent.
Functional currency=
The currency in which the main business activities are carried out. The main economic environment of the business.
Foreign currency=
Any other than the functional currency
Presentation currency=
The currency in which financial statements are presented. (normally the same as functional currency)
How to determine functional currency?
The currency in which the sales of goods and services are made. The currency in which main cost of entity is paid. Currency of main financing activities. Currency which determines the sales price of goods/services.
When translating from functional currency to presentation currency which exchange rate should be used for Income & expenses AND Assets & liabilities?
Income & expenses= the average spot price (actually the exchange rate for every transaction but an average is ususally used in practice)
Assts & liabliities = The closing date spot price
