F2 - C3 - Foreign Currency Transactions IAS21 Flashcards
Objectives of IAS21
- Include foreign transactions and operations within the financial statements
- Translate statements into presentational currency
Types of foreign activities
Individual transactions in foreign currencies
Foreign Operations
Types of currency
Functional currency
Foreign currency
Local currency
Presentation currency
Characteristics of Functional currency
General currency for:
1. Selling prices of goods
2. Funds used for financing activities
3. Receipts from operations are generally kept
4. Influences labour, material and other costs
Reasons for Presentation currency to be different to Functional currency
Transparency
Main investors
Funding
Ways of initial measurement of foreign currencies
- Spot exchange rate
- An average rate over time
- Contract rate
Ways subsequent measurements can be done
- Date the transaction was settled
- Year-end date
Treatment of non-monetary assets and liabilities
Historical cost - not restated
Fair value - Restated at rate for the date when the fair value was determined
What is a foreign operation
Activities of a reporting entity which are based in another country or currency to the reporting entity
Consolidation statement of financial position for a foreign subsidiary
Goodwill, assets and liabilities are translated at the closing rate
Consolidated income statement for a foreign subsidiary
Income and expenses are translated at actual rate
Retranslation of goodwill for a foreign subsidiary
Goodwill is restated from the closing rate of the previous reporting period to the closing rate of the current reporting period
Treatment of exchange rate gains and losses
Income statement - Total reported in other comprehensive income
CSFP - Group share reported as equity in foreign exchange reserve
