Set 4 FR Chapter 18 Foreign Currency Transactions Flashcards
Define functional currency
The currency that an organization operates in day-to-day
how are transactions measured initially in fx?
spot rate. unless it’s over a period of time and transactions occur evenly, then you can use average rate.
what rate is used for interest paid or payable?
average - as this occurs over a period of time
how are monetary balance sheet accounts measured subsequently?
foreign-currency denominated assets and liabilities such as receivables/payables etc are converted to the exhcange rate on balance sheet date
how are gains/losses for monetary items accounted for?
net income
non-monetary items?
measured at historical exchange rate unless using rate of revaluation method.
How is derecognition accounted for?
Revalued to spot rate on date of sale and then derecognized normally.
disclosure
IAS 21 The Effects of Changes in Foreign Exchange Rates, paragraphs 51 to 55, require companies to disclose the following information about foreign currency transactions:
- entity’s functional currency
- amount of foreign exchange (FX) gain / loss in the income statement
- if there was a change in the functional currency during the year:
o what that change was (original and new currency)
o the rationale supporting the change
Interest expense / payable entries
DR Int expense (at average rate)
DR/CR FX loss/gain
CR Int payable (at spot rate at time loan was taken out)
ASPE differences
None!
