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FOREX

1. The document discusses foreign currency transactions and functional currency. It defines functional currency as the currency of the primary economic environment the entity operates in. 2. Key factors for determining functional currency are the currency that influences sales prices and costs, and the currency cash flows are usually generated and retained in. 3. Foreign currency transactions are recorded initially using the spot exchange rate on the transaction date, and monetary items are remeasured at each reporting date using the closing rate.

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Ericha Mutia
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42 views

FOREX

1. The document discusses foreign currency transactions and functional currency. It defines functional currency as the currency of the primary economic environment the entity operates in. 2. Key factors for determining functional currency are the currency that influences sales prices and costs, and the currency cash flows are usually generated and retained in. 3. Foreign currency transactions are recorded initially using the spot exchange rate on the transaction date, and monetary items are remeasured at each reporting date using the closing rate.

Uploaded by

Ericha Mutia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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PAS 21

2 FOREIGN ACTIVITIES:

1. Foreign Transactions
a. Example: imports and exports that are to be settled in a foreign currency – which are
needed to be translated in PHP before recorded in the books of accounts.
2. Foreign Operations
a. Example: branch in another country – which are needed to be translated in PHP before
they can be combined with home office’s fs.

2 MAIN ISSUES:

1. Which exchange rate to use


2. How to report the effects of changes in fs

FUNCTIONAL CURRENCY

The currency of the primary economic environment in which the entity operates. (Note: FC is the
currency in which the entity’s cash outflows and inflows are normally denominated. This is not
necessarily the currency of the country where the entity is based.)

FACTORS CONSIDERED IN DETERMINING FUNCTIONAL CURRENCY

1. Primary Factor – the currency that mainly influences the sales prices and cogs
2. Secondary Factor – the currency in which cash flows from financing act and operating act are
usually generated and retained.
3. Another Factor – whether the foreign operation is an extension of the entity; the foreign
operations functional currency is the same as that of the entity

Note:

 Functional currency is not changed unless there is a change in underlying transactions, events,
and conditions
 Changes in FC is accounted for by – translating the fs into the new fc prospectively from the date
of change
 All currencies are considered as foreign currencies, except functional currency.

Difference between functional currency, presentation currency, and foreign currency:

 PC is the currency in which the fs is presented.


 Functional Currency is the currency used in which the entity operates.
 Foreign Currency is the currency other that the entity’s functional currency.
What if the entity is based in a different country, what will happen to the changes in the currency?

The Functional Currency shall be used as the currency based on where the entity operates, but if
the fs is needed to be presented, the currency that should be used is the PC. Therefore, the currencies
shall be translated from Functional Currency to PC.

FOREIGN CURRENCY TRANSACTIONS

A transaction that is denominated or requires settlement in a foreign currency.

INITIAL RECOGNITION

AT SPOT EXCHANGE RATE at the date of the transaction

> Spot Rate – the exchange rate for immediate delivery

> Date of Transaction – the date on which the transaction first qualifies for recognition
in accordance with PFRS

SUBSEQUENT MEASUREMENT

MONETARY ITEMS – at CLOSING RATE

NONMONETARY ITEMS

> AT HISTORICAL COST – exchange rate AT THE DATE OF TRANSACTION

> AT FAIR VALUE – exchange rate AT THE DATE WHEN THE FAIR VALUE WAS
DETERMINED.

MONETARY ITEMS – are currencies held and assets and liabilities to be received or paid in a fixed
determinable amount of money. (cash and cash eq, ar, nr, lr, and related allowances and financial assets
measured at amortized cost, finance lease receivables, cash surrender value, ap, np, lp, bp, employee
benefits to be paid in cash, provisions and accrued payables to be settled in cash, and cash dividends
payable)

NON-MONETARY ITEMS – are those that do not give rise to the receipt or payment of a fixed or
determinable amount of money. (inv, prepaid assets, ppe, investment property, intangible assets,
goodwill, provisions that are to be settled by the delivery of a non-monetary asset, share cap and share
premium)

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