Foreign Currency Transactions

Question 1

Primary factors determining functional currency

Answer 1

1. Currency influencing sales prices for goods & services
2. Currency of country whose competitive forces and regulations determine sale prices
3. Currency mainly influencing input costs

Question 2

Secondary factors determining functional currency

Answer 2

Currency in which funds/receipts:

1. are generated from financing activities
2. are retained from operating activities

Question 3

What exchange rate is used for initial measurement?

Answer 3

Typically, spot rate on date of transaction.

If item is incurred evenly due to the passage of time ie. interest expense, use the average for the period

Question 4

What exchange rate is used for subsequent measurement?

Answer 4

Monetary items: spot rate on balance sheet date. Gains & losses in income

Non-monetary items: historical cost or rate at revaluation date

Question 5

Disclosures required relating to foreign currency transactions

Answer 5

Entity’s functional currency. Amount of forex gain/loss. If change to functional currency: nature and rationale.