IAS 21 The effects of changes in foreign exchange rates

How should foreign currency transactions (unsettled transactions) be subsequently measured in the accounts?

Monetary Items e.g. cash, receivables, payables, loans Treatment: Retranslate using the year-end exchange rate Non-Monetary Items e.g. non-current assets, inventory, investments Treatment: Leave at historic rate Any exchange difference arising on the retranslation of monetary items must be taken to the statement of profit or loss in the period in which it arises.

What is an entity's presentation currency?

The presentation currency is the currency in which the entity presents its financial statements. This can be different from the functional currency, particularly if the entity in question is a foreign owned subsidiary. It may have to present its financial statements in the currency of its parent, even though that is different to its own functional currency.

How should foreign currency transactions (settled transactions) be subsequently measured in the accounts?

When cash settlement occurs, for example payment by a receivable, the settled amount should be translated using the spot exchange rate on the settlement date. If this amount differs from that recorded when the transaction occurred, there will be an exchange difference which is taken to the statement of profit or loss in the period in which it arises.

How should foreign currency transactions be initially recognised in the accounts?

Where an entity enters into a transaction denominated in a currency other than its functional currency, that transaction must be translated into the functional currency before it is recorded. The transaction will initially be recorded by applying the spot exchange rate, i.e. the exchange rate at the date of the transaction.

How should the assets and liabilities of a foreign subsidiary be translated into the parent's presentation currency?

Assets and liabilities should be translated at the closing rate for the year.

How are exchange differences on the retranslation of the subsidiary (on net assets and goodwill) recognised?

Exchange differences arising on the retranslation of the subsidiary (on net assets and goodwill) are recognised within other comprehensive income.

What is an entity's functional currency? and which 5 factors should be considered when determining this?

The functional currency is the currency of the primary economic environment in which the entity operates. The entity maintains its day-to-day financial records in its functional currency. Primary factors an entity should consider when determining its functional currency: - The currency that mainly influences sales prices for goods and services - The currency of the country whose competitive forces and regulations mainly determine the sales prices of goods and services - The currency that mainly influences labour, material and other costs of providing goods and services Secondary factors an entity should consider when determining its functional currency: - The currency in which funding from issuing debt and equity is generated - The currency in which receipts from operating activities are usually retained

How is the exchange difference on goodwill attributed between parent shareholders and NCI?

All to parent shareholders, if NCI is measured using proportion of net assets method Between parent shareholders and NCI (based on their percentage holdings) if the NCI is measured using the fair value method Note that this is consistent with the treatment of goodwill impairment.

How should the goodwill of a foreign subsidiary be translated into the parent's presentation currency?

Goodwill of subsidiary should be translated at the closing rate for the year.

How should the income and expenses of a foreign subsidiary be translated into the parent's presentation currency?

Income and expenses should be translated at the average rate for the year.

How is the exchange difference on net assets attributed between parent shareholders and NCI?

The exchange difference on net assets is attributed between parent shareholders and NCI based on their percentage holdings.