Foreign Currency Transaction

Foreign Currency Transaction

Occurs when transaction is in a different currency than normal operations

Exchange rates

Direct - number of CAD required to purchase one unit of foreign currency, ex: 1USD = 1.41 CAD

Indirect - number of foreign units required to purchase one CAD

Functional currency

Currency of primary economic environment entity operated d2d in

Usually same as presentation currency

Initial measurement of Foreign currency transaction

Record using exchange rate on date of transaction (spot rate)

Dr. Inventory (USXCAD rate) / Cr. A/P in CAD

Transactions occurring evenly over a period may use an average rate

Dr. Interest expense / Cr. Cash - this entry has a gain or loss due to interest being measured at an average and cash using a different rate (ending spot)

Subsequent measurement of monetary items (FCT)

Monetary items on SFP are remeasured at closing rate on SFP date (cash, A/R, A/P, etc)

Items on I/S remain at initial measurement

Gains and losses are recognized in profit or loss

Bonds payable need to be converted against the gain/loss account

Subsequent measurement of non-monetary items (FCT)

If measured at historical cost, do not update

1. inventory is kept historical until sold then sold for consideration + cogs entry (cogs at historical)

If measured at FV, measure at FV and then translate using spot rate when FV was last determined (FV * FV spot rate) - no separate gain or loss for foreign exchange, overall gain to OCI

1. Under ASPE use spot rate at reporting date instead of last date updated