Foreign exchange

Question 1

What is the functional currency?

Answer 1

currency used in the financial statements

Question 2

How are foreign currency sales and purchases recorded?

Answer 2

at the spot rate (transaction date rate)

Question 3

How are foreign exchange assets/liabilities recognised (monetary/non-monetary)?

Answer 3

Monetary items
- amounts settled directly in cash (receivables, payables, loans, bonds)
- remeasured at the rate at SFP date
- gain or loss recorded in the P&L
- there will also be an FX gain or loss in P&L when the amount is paid if FX rate at payment date is different from FX rate used for SFP

Non-monetary items
- amounts not settled directly in cash (PPE, inventory)
- not remeasured