IAS 21 The Effects of Changes in Foreign Exchange Rates

A. Individual Entity level

How to deal individual foreign currency transactions in entity
financial statements. even the transactions between parent and
subsidiary company
B. Consolidation Level
How to consolidate the foreign Subsidiary whose presentation
currency is different from Parent presentation currency
Definitions
1. Functional currency How to determine Functional currency

Primary factors

When determining the appropriate functional

currency, management should give priority to
the following factors: ·

a) Currency influencing sales prices for

goods and services ·
b) Currency of country whose
competitive forces and regulations
Foreign operation determine sale prices ·
c) Currency mainly influencing input
costs.
Extension of the Independed operation
parent’s own Secondary factors
Determine the
operations Functional currency of The primary indicators may be determinative.
Foreign entity on the However, the following two indicators serve as
If it is ‘integral’ to its
basis of primary and supporting evidence.
‘parent’, the foreign
secondary factors
operation has the same Currency in which funds/receipts:
functional currency as
the parent. a) from financing activities are generated
b) from operating activities are retained.

Zubair Saleem AAFR notes IAS 21 Individual Entity Level 1

 2.Foreign Currency
Currency other than functional Currency
3.Presentation currency
Currency in which financial statements are presented

MONETARY Items

· Cash and due from banks

· Marketable debt securities
· Trade receivables
· Notes receivables Impairment test Measure
· Other receivables non-monetary assets at the
· Payables lower of
· Accruals
either: ·
· Interest/tax payable
Carrying amount x historical rate ·
Net realizable value/recoverable
NON-MONETARY Items amount x closing rate at the end of the
· Investment in associates period.
· Property, plant and equipment Translation gains or losses on
· Intangible assets asset/liability recognised in profit or
· Deferred tax assets loss.
· Prepaid expenses
· Advances to suppliers
· Marketable equity instruments
· Revenue received in advance

Zubair Saleem AAFR notes IAS 21 Individual Entity Level 2

Zubair Saleem AAFR notes IAS 21 Individual Entity Level 3