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  • Accounting For Foreign Exchange Ias 21

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    Nicole
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    This document discusses accounting for foreign exchange transactions under IAS 21. It covers key topics like functional currency, foreign currency, presentation currency, initial measurement using spot rates, subsequent measurement using historical or fair value rates, and translation of financial statements to the presentation currency. Forward contracts can be used as hedges for accounts payable or receivable. The translation of assets, liabilities and equity results in an accounting equation that balances with an other comprehensive income account.

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    Accounting for Foreign Exchange Ias 21 (1)

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    This document discusses accounting for foreign exchange transactions under IAS 21. It covers key topics like functional currency, foreign currency, presentation currency, initial measurement using spot rates, subsequent measurement using historical or fair value rates, and translation of financial statements to the presentation currency. Forward contracts can be used as hedges for accounts payable or receivable. The translation of assets, liabilities and equity results in an accounting equation that balances with an other comprehensive income account.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    20 views20 pages

    Accounting For Foreign Exchange Ias 21

    Uploaded by

    Nicole
    This document discusses accounting for foreign exchange transactions under IAS 21. It covers key topics like functional currency, foreign currency, presentation currency, initial measurement using spot rates, subsequent measurement using historical or fair value rates, and translation of financial statements to the presentation currency. Forward contracts can be used as hedges for accounts payable or receivable. The translation of assets, liabilities and equity results in an accounting equation that balances with an other comprehensive income account.

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    of 20

    ACCOUNTING FOR

    FOREIGN EXCHANGE
    (IAS 21)
    CURRENCY CLASSIFICATIONS

    • Functional currency
    • Foreign currency
    • Presentation currency
    IMPORTATION TRANSACTION

    Merchandise

    Cash ($)
    EXPORTATION TRANSACTION

    Merchandise

    Cash ($)
    What currency should I use to record the transaction? Dollars
    or Peso?

    Use the functional


    currency!
    FOREIGN EXCHANGE RATES QUOTATION

    Exchange Rates

    Direct Quotation Indirect Quotation


    (# of functional currency per (# of foreign currency per
    unit of foreign currency) unit of functional currency)

    P40 : $1 P1 : $0.025
    TRANSLATING USING EXCHANGE RATES:

    • Assume that the contract price is $10,000. Determine the peso equivalent of the
    contract price.
    • CASE A: Quotation provided is: P48 : $1
    • CASE B: Quotation provided is P1 : $0.025
    HOW SHOULD CAPTAIN BARBELL RECORD THE
    TRANSACTION INVOLVING FOREIGN CURRENCY?
    • INITIAL MEASUREMENT: use the spot rate on the date of transaction
    • Example:
    • On September 15, 2020, Philippine Company purchases inventory from a US Company
    with invoice price of $100,000.
    • The spot rate on September 15 is P45:$1

    Purchases 4,500,000.00
    Accounts Payable (USD) 4,500,000.00
    ($100,000 x P45 per USD)
    SUBSEQUENT MEASUREMENT

    Subsequent Measurement

    Measured at historical cost Historical Rate

    Monetary Non-monetary

    Rate when FV was


    Measured at fair value
    measured

    Closing spot rate


    WHICH TO USE? BUYING RATE OR SELLING RATE?
    EXPORTATION
    COMPANY
    You sell USD
    to the bank.

    USD The bank buys


    your USD.
    USD
    The bank
    PESO determines
    the rate (BUY
    RATE)
    WHICH TO USE? BUYING RATE OR SELLING RATE?
    IMPORTATION
    COMPANY
    You buy USD
    from the
    bank.
    PESO
    USD The bank sells
    you USD.

    USD The bank


    determines
    the rate (SELL
    RATE)
    SYNONYMS
    FORWARD CONTRACTS TO BUY DOLLARS

    COMPANY

    USD

    PESO
    FORWARD CONTRACTS TO SELL DOLLARS

    COMPANY

    PESO

    USD
    FORWARD CONTRACT AS HEDGE OF ACCOUNTS
    PAYABLE
    COMPANY

    PESO
    USD

    USD

    The company enters into a forward contract to buy dollars from


    a bank in order to pay the supplier.
    FORWARD CONTRACT AS HEDGE OF ACCOUNTS
    RECEIVABLE
    COMPANY
    You sell USD
    to the bank.

    USD The bank buys


    your USD.
    USD
    The bank
    PESO determines
    the rate (BUY
    RATE)
    The company enters into a forward contract to sell dollars to a
    bank because the company needs Peso for its operations
    TRANSLATION OF PRESENTATION CURRENCY

    • If the functional currency is NOT THE SAME as the presentation currency:


    • Assets and Liabilities are translated using the Closing Rate
    • Stockholders’ Equity are translated using the Historical Rate
    • Revenues and Expenses are translated using the Historical Rate or Average Rate for
    practical reasons
    WILL THE T-ACCOUNT BE BALANCED?

    Assets @ Closing Liabilities @ Closing


    SHE @ Historical
    BALANCING FIGURE:

    Assets @ Closing Liabilities @ Closing


    SHE @ Historical
    OCI
    ACCOUNTING EQUATION

    A @ C = L @ C + E @ H + OCI
    E @ C = E @ H + OCI

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