Foreign Currency Transactions and Translation

SFAS 52, December 1981

"Foreign Currency Translation"

Functional currency

1. Functional currency

--> the currency of the primary economic environment

--> of the entity

2. Accounting transactions are measured and recorded in functional currency

Reporting currency

Reporting currency

--> the currency used to report financial statements

Translation

If reporting currency is not functional currency

--> all items reported in financial statements are

--> translated from functional currency to reporting currency

Remeasurement

1. If accounting transactions are recorded in local currency that is not functional currency

--> remeasure accounting records from local currency to functional currency

--> then translate from functional currency to reporting currency

2. Accounting records after remeasurement

--> will be same as (1)

(1) accounting records when all transactions were recorded in functional currency

Exchange rate for remeasurement

1. For nonmonetary accounts

--> use historical rates between local currency and functional currency

2. For revenue and expenses resulted from nonmonetary accounts

--> use historical rates between local currency and functional currency

3. For monetary accounts

--> use current rate between local currency and functional currency

4. Foreign currency transaction gains and losses are also recognized

Foreign currency transaction gains and losses are

--> recognized in income

--> with some exceptions

--> as explained in the Codification Topic 830-20

Foreign currency translation adjustments are

--> reported in other comprehensive income (OCI)

--> as explained in the Codification Topic 830-30

Changes in functional currency

When functional currency changes

--> previous financial statements are not restated