FAR - Chapter 5 - Foreign currency

What is the IAS 321 definition for historic rate?

rate in place at the date the transaction takes place, aka the spot rate.

What is the IAS 321 definition for closing rate?

rate at the reporting date

What is the IAS 321 definition for average rate?

average rate throughout the accounting period

What is the IAS 321 definition for monetary assets/liabilities?

items that can be easily converted into cash e.g. receivables, payables, loans.

What is the IAS 321 definition for non-monetary items?

items that give no right to receive or deliver cash e.g. inventory, property, plant and equipment.

What is the IAS 321 definition for functional currency?

the currency of the primary economic environment in which the entity operates

What is the IAS 321 definition for presentation currency?

the currency in which the financial statements are presented

How do we deal with initial transactions regarding foreign currencies?

Translate using the historic rate prevailing at the transaction date

**The average rate can also be used if it does not fluctuate significantly during the accounting period.

How do we deal with settled transactions regarding foreign currencies?

Translate payment/receipt using the historic rate prevailing at that date

This is for payment/receipt occurring during the accounting period

As this may be different to the rate at the date of the initial transaction, an exchange difference may arise. This is posted to the statement of profit or loss.

How do we deal with unsettled transactions regarding foreign currencies?

If a transaction is still unsettled at the reporting date, there will be an outstanding receivable or payable (monetary items) on the statement of financial position.

Such as receivables or payables should be retranslated at the closing rate

Exchange differences will arise on the translation of the monetary items. These are also posted to the statement of profit or loss

** Do not retranslate non-monetary items as that would change the value inappropriately

How do you deal with non-monetary items under the cost model with regards to foreign currencies?

1. Initially translated at the historic rate

2. Carry forward this value & depreciate

DO NOT retranslate

How do you deal with non-monetary items under the fair value model with regards to foreign currencies?

1. Initially translated at historic rate

2. Retranslate at spot rate on the date that the fair value is determined

3. Recognise the exchange gain/loss in either equity or the SPL, depending on where the change in the fair value of the item is recognised