PAS 21: FOREX

Foreign Currency Transactions and Foreign Operations

Two ways of conducting foreign activities

Foreign Currency Transactions

import or export transactions that are to be settled in a foreign currency. These transactions need to be translated to Philippine Pesos before they can be recorded in the books of accounts

Foreign Operations

a branch in another country. The overseas branch will normally maintain its accounting records and prepare its financial statements in a foreign currency. Those financial statements need to be translated to Philippine pesos before they can be combined with the home office's financial statements

Two accounting issues in accounting for foreign activities

(a) Which exchange rate(s) to use and (b) how to report the effects of changes in exchange rates in the financial statements.

Functional currency

the currency of the primary economic environment in which the entity operates, this is the currency in which the entity's cash flows are normally denominated into and is not necessarily the currency of the country where the entity is based.

Factors in determining functional currency

(a) The currency that mainly influences the sale prices and cost of goods or services (b) The currency which cash flows from financing and operating activities are usually generated and retained

Prospectively

a change in functionalc currency is accounted for _____ from the date of change.

Foreign currency transaction

a transaction that is denominated or requires settlement in a foreign currency. (purchase or sale of goods, services or other assets at a foreign currency) and borrowing, lending or settling receivables or payables at amounts that are denominated in a foreign currency)

Spot exchange rate

used in initially recognizing the translation of foreign currency. "The exchange rate for immediate delivery" or simply the current exchange rate on a given date

Date of a transaction

the date on which the transaction first qualifies for recognition in accordance with PFRSs.

Closing rate

Monetary items are translated subsequently using

Exchange rate at the date of transaction

Nonmonetary items measured at historical cost are translated subsequently using

Exchange rate at the date when the fair value was determined

Nonmonetary items measured at fair value are translated subsequently using

Closing rate

the spot exchange rate at the reporting date

Monetary items

are currencies held and assets and liabilities to be received or paid in a fixed or determinable amount of money

Nonmonetary items

are those which do not give rise to the receipt or payment of a fixed or determinable amount of money

Exchange Differences

the difference resulting from translating a given number of units of one currency into another currency at different exchange rates

Closing rate at the date of the statement of financial position

Assets and Liabilities (including comparatives) are translated using

Exchange rates at the dates of the transactions

Income and expenses (including comparatives) are translated using

Reclassification adjustment

When a foreign operation is disposed of, the cumulative amount of exchange differences recognized in other comprehensive income and accumulated in equity is subject to