Summary
Foreign transactions summary
This is an overview of IAS 21 and states the basic principles that need to be applied because of this standard.
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General aspectsGeneral approach:
1. Account for transaction using normal principles No Deferred tax on forex differences = tax & accounting aligned
2. Identify correct translation rate
3. Translate amount for journal entry
4. Year end = maybe adjust balances?
Translation rates
Initial recognition Settlement date
Transaction at point in time: Translate to spot exchange rate
$ x spot exchange rate on date Recognise exchange difference in P/L
Transaction over period of time:
$ x average exchange rate during Exchange difference = what the items rate is currently in our books
period vs what the rate should be translated to
If there is a year end between
these dates
Inventory:
Different treatments for: Monetary = fixed amount NRV @ R on value date
Monetary items = translate to closing rate of cash vs
Exch. diff in P/L Cost @ R on acquisition
Non-moneraty items @ cost = not translate
Non-monetary @ FV = translate to rate on date of FV measurement
Exch. diff in P/L or OCI
(where FV adj is)
Forward exchange contracts
Entered into FEC Reporting date/Year end Settlement date
No accounting entry Agreed rate vs new FEC rate with same maturity date Exch. diff as
Movement = P/L mentioned above
TIP: use timelines for this standard and if needed tables with rates used/to be used beneath timeline
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