Foreign Currency Transactions

Question 1

Functional currency

Answer 1

day to day. Operate in

Question 2

Spot rate

Answer 2

Rate on day of transaction

Question 3

Revenue and expense transaction

Answer 3

Translate at day of transaction

Question 4

Monetary B/S items

Answer 4

A/R, A/P, Loans

Translated at closing rate on b/s date

Gain/ loss recorded in NI of c/y

Question 5

Non Monetary B/S items

Answer 5

Prepaids, PPE, Inventory, intangibles

Translated at historical costs. Not updated at b/s date.

Gain/loss recorded at derecognition on PPE
Inventory reduced at historical amount

Question 6

Entry for gain/loss

Answer 6

DR/CR Foreign exchange gain/loss

Question 7

Derecognition of Asset or Liability (foreign)

Answer 7

1. Revalue at spot rate on derecognition date
   DR/CR Foreign exchange gain/loss
2. Dispose normally

Question 8

Puchase Inventory in US

Answer 8

DR inventory
CR A/P - At spot rate

At y/e:
DR/CR A/P
DR/CR DR/CR Foreign exchange gain/loss

Note. only update AP as it is monetary.

Pay A/P:

1. update to spot rate gain/loss
2. settle with cash