Ias 21 Flashcards
Functional currency
Currency of primary economic environment where the entity operates
Primary factors
- Currency that mainly influences sales price
- Currency that mainly influences labor, material and other costs.
- Currency of country whose competitive forces and regulations mainly determine sales price
Secondary factors
- Currency in which funds from financing activities are generated
- Currency in which receipts from operating activities are retained
Foreign subsidiary
Sometimes it should simply use parents currency
Consider
- Whether it operates as extension of parents instead of significant autonomy
- The level of transactions with the parent
- Whether cash flows are readily available for remittance to its parents
- Whether the foreign operation has sufficient cash flows to service its debts without needing funds from its parents
Entering into a transaction denominated in a currency other than its functional currency
Translate to functional currency before recording
- Spot rate
2. Average rate over a period of time
Exchange differences
P/l
Overseas items in SOFP
Monetary- units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
Retranslated using closing rate
Non monetary items - other items in the SOFP
Don’t retranslate
If carried at fv , fv should be translated at rate on date it was determined
Criticism page 134
- Lack of theoretical underpinning.
Goodwill IMPORTANT
23
Arising at acquisition of foreign operations is treated as foreign operations asset
At each reporting date it is retranslated at closing exchange rate
Exchange difference goes to oci and also accumulated as a separate component of equity. Difference is attributed to group and nci both
Calculate all in dinars then translate to dollars.
Foreign currency loan overseas.
Check 23 a 3
- Translate to functional currency using historic spot rate
- Finance cost is translated at the Avg rate because it approximates to actual rate
3.
