IFRS in your pocket |2021

IAS 21 The Effects of Changes in Foreign Exchange Rates

Overview Prescribes the accounting for foreign currency

transactions and foreign operations.
Functional An entity’s functional currency is the currency of the
currency primary economic environment in which the entity
operates. All foreign currency items are translated
into that currency.
Exchange Transactions are recognised on the date that they
differences on occur using the exchange rate on that date for initial
transactions recognition and measurement.
Exchange At the end of a reporting period non-monetary
differences items carried at historical amounts continue to be
on translation measured using transaction-date exchange rates,
at the end of monetary items are retranslated using the closing
a reporting rate and non-monetary items carried at fair value
period are measured at valuation-date exchange rates.

Exchange differences arising on settlement or

translation of monetary items are included in profit
or loss, with one exception. Exchange differences
arising on monetary items that are part of the
reporting entity’s net investment in a foreign
operation are recognised in the consolidated
financial statements that include the foreign
operation in other comprehensive income. Such
differences are reclassified from equity to profit or
loss on disposal of the net investment.
Translation of When an entity has a presentation currency that is
the financial different from its functional currency, the results
statements and financial position are translated into that
into the presentation currency.
presentation
currency Assets (including goodwill arising on the acquisition
of a foreign operation) and liabilities for each
statement of financial position presented (including
comparatives) are translated at the closing rate at
the date of each statement.

Income and expenses for each period presented

(including comparatives) are translated at exchange
rates at the dates of the transactions.

All resulting exchange differences are recognised as

other comprehensive income and the cumulative
amount is presented in a separate component of
equity until disposal of the foreign operation.

Special rules exist for translating the results and

financial position of an entity whose functional
currency is hyperinflationary.

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