◦ How to include Foreign Currency Transactions and Foreign Operations in the Financial Statements of the entity and
◦ How to Translate Financial Statements into a presentation currency.
|FUNCTIONAL CURRENCY||Currency of the ‘Primary Economic Environment’ in which the Entity operates.
Primary Economic Environment is normally the one in which the Entity PRIMARILY GENERATES AND EXPENDS CASH.
◦ The Currency that determines the Sales prices of its goods and services and Operating Costs.
◦ Currency of Generation of Funds from Financing Activities – Issue of Debt and Equity Instruments.
◦ Currency of Retention of Receipts from Operating Activities
ADDITIONAL INDICATORS (Only for Foreign Operations)
◦ Autonomy – Activities of Foreign Operation are Extension of the Reporting Entity or carried with a Significant Degree of Autonomy.
◦ Volume of Transactions with the Reporting Entity
◦ Impact of Cash Flows of Foreign Operation on the Reporting Entity.
◦ Ability to service Debt Obligations without resort to Reporting Entity.
When Indicators are mixed and Functional Currency is not obvious, MANAGEMENT uses its JUDGEMENT.
|CHANGE IN FUNCTIONAL CURRENCY|| Used CONSISTENTLY
is not changed unless there is a Change in Underlying Transactions, Events and Conditions (PRIMARY ECONOMIC ENVIRONMENT)
Change is accounted for PROSPECTIVELY.
|FOREIGN CURRENCY||Currency other than ‘functional currency’.|
(REMEASUREMENT OF FOREIGN CURRENCY TRANSACTIONS INTO FUNCTIONAL CURRENCY)
(b/w Functional Currency & Foreign Currency)
v Average Rate is permitted, if the exchange rates don’t fluctuate significantly.
|SUBSEQUENT MEASUREMENT OF FOREIGN CURRENCY TRANSACTIONS AND TRANSLATION OF FOREIGN OPERATIONS WITH DIFFERENT FUNCTIONAL CURRENCY||Items||Translation Rate||Recognition of Exchange Differences on Settlement or Translation|
|Monetary Items||Closing Rate on Balance Sheet Date||To Profit or Loss #|
|Non-Monetary Items at Historical Cost||Rate as at Date of Transaction||Equity : If Gain or Loss is recognized in Equity.
PL : If Gain or Loss is recognized in PL.
|Non-Monetary Items at Fair Value||Rate as at Date of Fair Value Determination|
|# Exchange differences arising on monetary items that form part of a reporting entity’s net investment in foreign operation shall be recognized, in consolidated financial statements initially as a separate component of equity and recognized in profit or loss on Disposal of the net investment.|
|TRANSLATION TO PRESENTATION CURRENCY *
(*Except that of an entity whose functional currency is the currency of a hyperinflationary economy.)
|Items||Translation Rate||Recognition of Exchange Difference|
|Assets and Liabilities (including Comparatives)||Closing Rate on Balance Sheet Date||As a Separate Component of Equity.|
|Income and Expenses
|Exchange Rate at the date of the transaction #|
|Historic Rate or Closing Rate (Management Policy)|
|# Average Rate is permitted, if the exchange rates don’t fluctuate significantly.|
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