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What is the accounting treatment for the gain or loss resulting from measuring the asset at NRV, recoverable amount or at a revalued amount?
What is the accounting treatment for the gain or loss resulting from measuring the asset at NRV, recoverable amount or at a revalued amount?
When several exchange rates are available, which rate is used?
When several exchange rates are available, which rate is used?
What is the purpose of an allowance for a dealer's margin in trading?
What is the purpose of an allowance for a dealer's margin in trading?
Why does an entity use the buying rate when realizing a foreign currency receivable?
Why does an entity use the buying rate when realizing a foreign currency receivable?
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What is the result of a revaluation increase?
What is the result of a revaluation increase?
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Why does the entity use the selling rate when settling a foreign currency payable?
Why does the entity use the selling rate when settling a foreign currency payable?
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What is the spot exchange rate used for?
What is the spot exchange rate used for?
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What is the purpose of using the first subsequent rate at which exchanges could be made when exchangeability between two currencies is temporarily lacking?
What is the purpose of using the first subsequent rate at which exchanges could be made when exchangeability between two currencies is temporarily lacking?
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What is the date of a transaction according to PAS 21.22?
What is the date of a transaction according to PAS 21.22?
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At which exchange rate are non-monetary items measured at historical cost translated?
At which exchange rate are non-monetary items measured at historical cost translated?
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What is the result of an impairment loss?
What is the result of an impairment loss?
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What is the definition of monetary items?
What is the definition of monetary items?
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What is the purpose of using an average rate for a period?
What is the purpose of using an average rate for a period?
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At which exchange rate are monetary items translated at the reporting date?
At which exchange rate are monetary items translated at the reporting date?
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What is an example of a non-monetary item?
What is an example of a non-monetary item?
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When is the use of an average rate for a period inappropriate?
When is the use of an average rate for a period inappropriate?
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What is the translation procedure for goodwill and fair value adjustments for foreign subsidiaries?
What is the translation procedure for goodwill and fair value adjustments for foreign subsidiaries?
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What is the definition of net investment in a foreign operation?
What is the definition of net investment in a foreign operation?
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How are exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation recognized?
How are exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation recognized?
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What happens to the cumulative amount of exchange differences recognized in other comprehensive income when a foreign operation is disposed of?
What happens to the cumulative amount of exchange differences recognized in other comprehensive income when a foreign operation is disposed of?
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Which of the following is an example of a monetary item that forms part of a reporting entity's net investment in a foreign operation?
Which of the following is an example of a monetary item that forms part of a reporting entity's net investment in a foreign operation?
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What happens to the exchange differences recognized in other comprehensive income when a partial disposal of a foreign operation occurs?
What happens to the exchange differences recognized in other comprehensive income when a partial disposal of a foreign operation occurs?
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Where are exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation recognized in the consolidated financial statements?
Where are exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation recognized in the consolidated financial statements?
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What is the treatment of exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation on disposal of the net investment?
What is the treatment of exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation on disposal of the net investment?
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What is the first step in translating financial statements in a hyperinflationary economy?
What is the first step in translating financial statements in a hyperinflationary economy?
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What is the purpose of restatement under PAS 29?
What is the purpose of restatement under PAS 29?
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Which items are not restated according to PAS 29?
Which items are not restated according to PAS 29?
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What is the formula for restatement under PAS 29?
What is the formula for restatement under PAS 29?
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When can an entity use an average general price index for the period?
When can an entity use an average general price index for the period?
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What is the purpose of recognizing the gain or loss on the net monetary position?
What is the purpose of recognizing the gain or loss on the net monetary position?
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What is the net monetary position?
What is the net monetary position?
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What is the treatment of 'Retained earnings' in the restated statement of financial position?
What is the treatment of 'Retained earnings' in the restated statement of financial position?
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What is the primary factor that determines a reporting entity's functional currency?
What is the primary factor that determines a reporting entity's functional currency?
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What happens when there is a change in the underlying transactions, events, and conditions of a reporting entity's functional currency?
What happens when there is a change in the underlying transactions, events, and conditions of a reporting entity's functional currency?
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How are foreign currency monetary items re-translated subsequent to initial recognition?
How are foreign currency monetary items re-translated subsequent to initial recognition?
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Where are exchange differences recognized when translating financial statements into a presentation currency?
Where are exchange differences recognized when translating financial statements into a presentation currency?
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How are assets and liabilities translated when translating financial statements into a presentation currency?
How are assets and liabilities translated when translating financial statements into a presentation currency?
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What is the exception to the general rule of translation for hyperinflationary entities?
What is the exception to the general rule of translation for hyperinflationary entities?
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Study Notes
Initial Recognition
- A foreign currency transaction is initially recognized by translating the foreign currency amount into the functional currency using the spot exchange rate at the date of the transaction.
- The spot exchange rate is the exchange rate for immediate delivery, also known as the current exchange rate on a given date.
- The date of a transaction is the date on which the transaction first qualifies for recognition in accordance with PFRS.
Subsequent Measurement
- At each reporting date, the following items are translated as follows:
- Monetary items: Closing rate
- Non-monetary items measured at historical cost: Exchange rate at the date of transaction
- Non-monetary items measured at fair value: Exchange rate at the date when the fair value was determined
- Closing rate is the spot exchange rate at the reporting date.
Monetary Items vs. Non-monetary Items
- Monetary items are currencies held and assets and liabilities to be received or paid in a fixed or determinable amount of money.
- Non-monetary items are those which do not give rise to the receipt or payment of a fixed or determinable amount of money.
- Examples of monetary items:
- Cash and cash equivalents
- Accounts/Notes/Loans receivable and their related allowances and other financial assets measured at financial assets measured at
- Finance lease receivables
- Cash surrender value
- Examples of non-monetary items:
- Inventories
- Prepaid assets
- Property, plant & equipment
- Investment property
- Intangible assets
- Goodwill
Several Exchange Rates
- When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date.
- If exchangeability between two currencies is temporarily lacking, the rate used is the first subsequent rate at which exchanges could be made.
Translation Procedures
- The translation procedures discussed above apply to the translation of a foreign operation's financial statements.
- For foreign subsidiaries, goodwill and fair value adjustments are translated at the closing rate.
- If the subsidiary is not wholly-owned, the exchange differences are allocated to both the owners of the parent and NCI.
Net Investment in a Foreign Operation
- Net investment in a foreign operation is the amount of the reporting entity's interest in the net assets of that operation.
- A monetary item that is receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future is, in substance, a part of an entity's net investment in a foreign operation.
- Exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation are recognized as follows:
- In profit or loss in the separate financial statements of the reporting entity or the foreign operation, as appropriate
- In other comprehensive income in the consolidated or combined financial statements.
Disposal or Partial Disposal of a Foreign Operation
- When a foreign operation is disposed of, the cumulative amount of exchange differences recognized in other comprehensive income and accumulated in equity is reclassified to profit or loss as a reclassification adjustment.
- On a partial disposal of a foreign operation, only a proportionate share is reclassified from equity to profit or loss.
Translation Procedures - Hyperinflationary Economy
- If the functional currency is the currency of a hyperinflationary economy, the entity's financial statements are first restated in accordance with PAS 29 before they are translated under PAS 21.
- An entity cannot avoid this restatement by, for example, simply adopting another non-hyperinflationary currency as its functional currency.
- After restatement in accordance with PAS 29, all amounts (i.e., assets, liabilities, equity, income and expenses, including comparatives) are translated at the closing rate at the current reporting date.
- However, when the presentation currency is that of a non-hyperinflationary economy, comparative amounts need not be adjusted anymore for the subsequent changes in the price level or exchange rates.
- When the economy ceases to be hyperinflationary, the entity uses as the historical costs for translation into the presentation currency the amounts restated to the price level at the date the entity ceased restating its financial statements.
Summary of Restatement Procedures under PAS 29
- Only non-monetary items not already stated at the measuring unit current as of end of reporting period are restated.
- Monetary items are not restated.
- Formula for restatement:
- Historical cost × (current price index, Index as of end of reporting period ÷ Historical price index, Index as of acquisition date)
- The gain or loss on the net monetary position (also called 'purchasing power gain or loss') is recognized in profit or loss.
- The financial statements of the branch are restated in accordance with PAS 29 and translated in accordance with PAS 21 as follows.
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Description
Learn about the process of initial recognition of foreign currency transactions, including the use of spot exchange rates and the date of transaction.
