ACCOUNTING TREATMENT (IAS – 21)

Foreign Currency Transactions

Recognition and Initial Measurement
22.4.1 For purposes of recognition, determine for each entity whether it is:
 a stand-alone entity;
 an entity with foreign operations (parent); or
 a foreign operation (subsidiary or branch).
22.4.2 On initial recognition, a foreign currency transaction should be reported in the functional
currency by applying to the foreign currency amount the spot exchange rate between the functional
currency and the foreign currency. Use the spot exchange rate on the transaction date, which is the
date the item first qualifies for recognition per the relevant standard.
Subsequent Measurement
22.4.3 At each reporting date, subsequent measurement takes place as follows:
 Monetary items that remain unsettled are translated using the closing rate (the spot exchange
rate on the date of the Statement of Financial Position).
 Nonmonetary items are carried using the following measurements:
– Historical cost items are reported using the exchange rate at the date of the transaction.
Approximate or average rates may be more appropriate for inventories or cost of sales, which affect
the statement of comprehensive income.
– Fair value items are reported using the exchange rate at the date when the fair value was
determined.
Exchange differences on monetary items are included in profit or loss in the period in which they
arise, regardless of whether they arise on settlement or translation at rates different from those at
which they were translated on initial recognition.
The following exchange differences are included in other comprehensive income until disposal of the
related asset or liability, when they are transferred to profit or loss:
■ Mark-to-market gains or losses on available-for-sale financial assets. Translation differences on
nonmonetary items classified as available for sale, for example equity instruments, are included in
other comprehensive income. However, translation gains and losses on monetary items classified as
available-for-sale, for example bonds, are included in profit or loss.
■ Nonmonetary item gains and losses (for example gains on property, plant, and equipment, revalued
in terms of IAS 16).
■ Inter-group monetary items that form part of an entity’s net investment in a foreign entity. These
differences are recognized in profit or loss in the stand-alone financial statements of the parent but
are included in other comprehensive income in its consolidated financials until the investment is
disposed of.
■ A foreign liability that is accounted for as a hedge of an entity’s net investment in a foreign entity
(IAS 39 criteria, see chapter 17).
Answer:

Answer:
Answer:
Answer:
Answer:

Answer:

Answer: