Foreign Currency Flashcards
Foreign Currency Translation
Assets and liabilities are translated at the period-end rate and income statement amounts generally are translated at the average rate, with the exchange differences reported in equity.
Remeasurement
If an entity does not maintain its books in its functional currency, remeasuring into the functional currency is required prior to translation into the reporting currency (i.e., the parent company’s currency).
Nonmonetary Balance Sheet Items
remeasured using historical exchange rates.
Asset and Liability Translation
current exchange rate at the balance sheet date
Revenue and Expense Translation
at the exchange rate at the time the revenue or expense was recognized, however, due to the impracticability of this where rates change frequently, a weighted-average exchange rate for the period may be used;
Contributed Capital Translation
at the historical exchange rate
Retained Earnings Translation
at the translated amount of retained earnings for the prior period, plus (less) net income(loss) at the weighted-average rate, less dividends declared during the period at the exchange rate when declared.
Remeasurement Process
Both US GAAP and IFRS require re-measurement into the functional currency before translation into the reporting currency.
Foreign Currency Statement Process
Prior to translation, the foreign currency statements must be conformed to US GAAP and be measured in the functional currency of the foreign entity (otherwise, remeasurement into the functional currency is required).
Functional Currency
At the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction should be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date.
Adjustment
At each balance sheet date, recorded balances that are denominated in a currency other than the functional currency of the recording entity should be adjusted to reflect the current exchange rate.
Transaction Gains and Losses
reported as a component of income from continuing operations.
Settlement Recognition
Upon settlement, a transaction gain or loss, measured from the transaction date or the most recent intervening balance sheet date (whichever is later), should be included as a component of income from continuing operations for the period in which the transaction is settled.
Spot Rate
An organization which purchases or sells goods in currencies other than in its functional currency is required to recognize foreign currency gain/loss on them at the settlement date using the spot rate.
