Foreign currency in individual financial statements

Question 1

What is the definition of functional currency?

Answer 1

Currency of the primary economic environment in which an entity operates

Question 2

According to IAS21 what are the primary factors for determining functional currency?

Answer 2

-currency that influence sales prices
-currency that influences labour, material and other costs

Question 3

If primary factors are inconclusive at determining functional currency, what secondary factors should be used?

Answer 3

-currency in which finance is obtained
-currency in which operating receipts are obtained

Question 4

How are initial transactions recognised?

Answer 4

Translate using spot (historic) exchange rate

Question 5

How are cash settlements recognised?

Answer 5

Translate using spot (historic) exchange rate

Question 6

If exchange rates move between initial transaction and settlement date, what happens?

Answer 6

a foreign exchange gain or loss arises which is recorded in p&l

Question 7

How are monetary items treated at the reporting date?

Answer 7

Re-translate using the closing rate
Exchange gains or losses to p&l

Question 8

How are non-monetary items treated at the reporting date?

Answer 8

Do not retranslate
If held at fair value, then fair value should be translated using the rate on the date it was determind