IAS 21 Flashcards
What is a functional currency?
Currency of primary economic environment in which entity operates
Where is currency translated?
At spot rate at date of transaction
What is restated at year end (closing rate)
Monetary assets and liabilities
Where are exchange differences recognised?
In SPL
How are revaluations charged?
Charged to OCI
What is a presentational currency?
Currency in which FSs are presented
Are presentation and functional currency usually same?
Yes
What influences the choice of the functional currency?
Currency that mainly influences sales prices for goods and services
Competitive forces and regulations determine sales
Mainly influences, labour, material and other costs
A foreign currency transaction?
A transaction which is not in entity’s functional currency
What must happen with foreign currency transaction?
It msut be translated into entity’s functional currency before recognition in FSs
How must entity translate each transaction into its functional currency?
Applying spot exchange rate between functional and foreign currency at date of transaction
If exchange rates do not fluctuate significantly?
An average rate for period may be used as an approximation
Accounting treatment of monetary assets and liabilities? (e.g. receivables and payables)
Retranslated at closing rate
Non-monetary assets measured at historical cost? (e.g. NCA, inventories)
Don’t retranslate, items remain at historical rate
Non-monetary assets measured at fair value?
Retranslate at exchange rate when fair value determined
What happens with exchange differences?
Are recorded in SPL
Where is trade transaction recorded in SPL?
Operating costs
Where is financing transaction recorded in SPL?
Finance costs
Is inventory a non-monetary asset?
Yes
Is payables a non-monetary asset?
No, it is a monetary asset
Which of the following foreign currency exchange rates may be used to translate the foreign currency purchases and sales?
The rate which existed on the day that the purchase or sale took place
An average rate for the year, provided there have been no significant fluctuations throughout the year
