IAS 21 The Effects of Changes in Foreign Exchange Rates
These days people use about 180 currencies world wide!
The truth is that we, people, don’t want to stay isolated. We love to sell, buy, import, export, trade together and do many other things, all in foreign currencies!
When you look at the business world, you’ll see that business go global in two ways: they either have individual transactions in foreign currencies, or when they grow bigger, they often set up foreign operations (separate business abroad).
Moreover, the exchange rates change every minute. So how to bring a bit of organization into this currency mix-up? That’s why there is the standard IAS 21 The Effects of Changes in Foreign Exchange Rates.
What is the objective of IAS 21?
The objective of IAS 21 The Effects of Changes in Foreign Exchange Rates is to prescribe:
- How to include foreign currency transactions and foreign operations in the financial statements of an entity; and
- How to translate financial statements into a presentation currency.
In other words, IAS 21 answers 2 basic questions:
- What exchange rates shall we use?
- How to report gains or losses from foreign exchange rates in the financial statements?
Functional vs. Presentation Currency
IAS 21 defines both functional and presentation currency and it’s crucial to understand the difference:
Functional currency is the currency of the primary economic environment in which the entity operates. It is the own entity’s currency and all other currencies are “foreign currencies”.
Presentation currency is the currency in which the financial statements are presented.
In most cases, functional and presentation currencies are the same.
Also, while an entity has only 1 functional currency, it can have 1 or more presentation currencies, if an entity decides to present its financial statements in more currencies.
You also need to realize that an entity can actually choose its presentation currency, but it CANNOT choose its functional currency. The functional currency needs to be determined by assessing several factors.
How to determine functional currency
The most important factor in determining the functional currency is the entity’s primary economic environment in which it operates. In most cases, it will be the country where an entity operates, but this is not necessarily true.
The primary economic environment is normally the one in which the entity primarily generates and expends the cash. The following factors can be considered:
- What currency does mainly influence sales prices for goods and services?
- In what currency are the labor, material and other costs denominated and settled?
- In what currency are funds from financing activities generated (loans, issued equity instruments)?
- And other factors, too.
Sometimes, sales prices, labor and material costs and other items might be denominated in various currencies and therefore, the functional currency is not obvious.
In this case, management must use its judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.
How to report transactions in Functional Currency
Initial recognition
Initially, all foreign currency transactions shall be translated to functional currency by applying the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.
The date of transaction is the date when the conditions for the initial recognition of an asset or liability are met in line with IFRS.
Subsequent reporting
Subsequently, at the end of each reporting period, you should translate:
- All monetary items in foreign currency using the closing rate;
- All non-monetary items measured in terms of historical cost using the exchange rate at the date of transaction (historical rate);
- All non-monetary items measured at fair value using the exchange rate at the date when the fair value was measured.
How to report foreign exchange differences
All exchange rate differences shall be recognized in profit or loss, with the following exceptions:
- Exchange rate gains or losses on non-monetary items are recognized consistently with the recognition of gains or losses on an item itself.For example, when an item is revalued with the changes recognized in other comprehensive income, then also exchange rate component of that gain or loss is recognized in OCI, too.
- Exchange rate gain or loss on a monetary item that forms a part of a reporting entity’s net investment in a foreign operation shall be recognized:
- In the separate entity’s or foreign operation’s financial statements: in profit or loss;
- In the consolidated financial statements: initially in other comprehensive income and subsequently, on disposal of net investment in the foreign operation, they shall be reclassified to profit or loss.
Change in functional currency
When there is a change in a functional currency, then the entity applies the translation procedures related to the new functional currency prospectively from the date of the change.
How to translate financial statements into a Presentation Currency
When an entity presents its financial in the presentation currency different from its functional currency, then the rules depend on whether the entity operates in a non-hyperinflationary economy or not.
Non-hyperinflationary economy
When an entity’s functional currency is NOT the currency of a hyperinflationary economy, then an entity should translate:
- All assets and liabilities for each statement of financial position presented (including comparatives) using the closing rate at the date of that statement of financial position.
Here, this rule applies for goodwill and fair value adjustments, too. - All income and expenses and other comprehensive income items (including comparatives) using the exchange rates at the date of transactions.
Standard IAS 21 permits using some period average rates for the practical reasons, but if the exchange rates fluctuate a lot during the reporting period, then the use of averages is not appropriate.
All resulting exchange differences shall be recognized in other comprehensive income as a separate component of equity.
However, when an entity disposes the foreign operation, then the cumulative amount of exchange differences relating to that foreign operation shall be reclassified from equity to profit or loss when the gain or loss on disposal is recognized.
Hyperinflationary economy
When an entity’s functional currency IS the currency of a hyperinflationary economy, then the approach slightly changes:
- The entity’s current year’s financial statements are restated first, as required by IAS 29 Financial Reporting in Hyperinflationary Economies. Comparative figures are used the same as current year’s figures in the financial statements from previous reporting period.
- Only then, the same procedures as described above are applied.
IAS 21 prescribes the number of disclosures, too. Please watch the following video with the summary of IAS 21 here:
Have you ever been unsure what foreign exchange rate to use? Please comment below this video and don’t forget to share it with your friends by clicking HERE. Thank you!
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235 Comments
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Hi Silvia. I’ve been reading through the questions and answers and have learned a lot already. Thank you for your time and patience.I have question and would really need your assistance. We have a few Loans in foreign currency. Every quarter we are required to submit quarterly report to management and thus have to convert these foreign currency Loans into presentation currency. The exchange rate variance were being posted to Unrealised foreign exchange loss/gain and the other leg of the entry is Borrowings. We do this entry every quarter, so the unrealised loss/gain accumulates. Now, at year end, we received the bank confirmation for the Loan balance, did the conversion, and the un-realised gain/loss is way less than what we’ve been accumulating in our GL every quarter. Do I reverse out those quarterly entries or re-classify them to Realised? Would really appreciate your advise.
Hi! I am from Argentina. It is probably that in my country the government will establish two different types of exchange rates. One will be for commercial transactions and other one for financial transactions. in this sense, the financial exchange rate will be used in case of the company decides to send dividends abroad. The companies should also use that same financial exchange rate for all its accountancy, for example, to determine every CTA? Thanks!! Marcelo
Hi Marcelo, as a quick response, this article might help as it provides principles of dealing with more than one rate. S.
may i know if it is possible that a forex loss be allowed as a deductible in the computation of minimum corporate income tax (mcit)?
thank you.
I just want to confirm if this statement is true regarding the exchange difference for purchased services/assets. “Exchange difference arises on import of machinery for a project and project under a WIP on account of Pre-operative expenses the exchange Dif. coud be capitalized. this asset expenses directly related to PPE whether as per PPE IndAS 16 it could be capitalized.”.
thanks
I have a question regarding foreign exchange revaluations for intersegment revenue? The scenario is such that one segment invoices the other for services rendered in foreign currency (USD) and the other segment recognises them in PKR which is its functional currency at the date of invoice. The agreement between the segments is such that the invoices shall be paid in functional currency (PKR) converted at the date of invoice. My question is that whether the payables and recievables at the balance sheet date shall be revalaued at the closing rate of balance sheet providing the payables/receivbales shall be settled at the date of invoice. Reavaluing them at the balance sheet date will not be the true picture of payable and receivable as we already know they will be settled at invoice date.
Hi Silvia,
Thank you for this article.
If a loan is considered as being part of a reporting entity’s net investment in a foreign operation is it only the unrealized gain and losses that are booked in OCI in the consolidated financial statement or also the realised gain and losses if a part of the loan is reimbursed for example. What happens if a portion of the loan is reimbursed. Does the entire loan no longer qualifies as being quasi-equity ?
Thank you
Best regards
Dear Madam,
Can you help me to calculate the exchange rate to pass the entry.
we have made a payment through our usd bank account 500usd.
but our erp system is in INR . now my confusion is that which rate we should take and how to calculate that rate.
Your advise will be very helpful for me.
Thank you,
Regards,
Usman Sheikh
For the payment itself – the rate of your bank.
Dear Madam,
Good day,
Thank you for your quick reply , Madam they directly debited to our usd bank account 500$. but we need to pass the entry in our erp system in INR . my confusion is that which exchange rate we have to take to convert the 500$.
is this OK to take that day exchange rate or we have to make some calculation to take exchange rate.
I Appreciate for your clarification .
Hi Silvia,
Appreciate the clarifications you make.
My query is,
QAR to USD is pegged at 3.64. However during difficult times (such as now) we do have to source USD at more than the pegged rate, say 3.67. Is it permissible by standards to account for purchases using the expected future payment rate (3.67) rather than the official pegged rate (3.64). This would increase my COGS and reduce the exchange loss. Note that rate of 3.67 is expected rate and will be confirmed only on payment.
Hi Faisal, well, you indeed should book the acquisition of an asset with the historical transaction date rate, not expected rate – thus the rate applicable when you recognize the item. S.
Dear madam
when i have unposted bank transactions in my bank, are those unposted transactions revalued?
Dear Madam,
Will you plz explain the applicability of para 28 of IAS 7 with example?
HI SIlvia,
I am doing accounting for a company based in Canada and the function and presentation currency is CAD. The company need to consolidate a US based subsidiary. The consolidation is effective as of Nov 19 2019. I need to converts the USD BL as of 12.31.19 and USD P&L effective ( 11/20/19 to 12/31/19) into CAD for the subsidiary. My understanding per IAS 21 is that the I will convert the P&L using the average FX rate for the period ( 11/20/19 to 12/31/19) and BL should be converted using the spot rate as of 12.31.19. The resulting change in FX will flow thru OCI. I am not able to roll fwd the equity balance of the subsidiary in CAD. My starting point is the the converted equity balance using the fx rate as of 11/19/19 ( the date when consolidation is effective). I am adding the converted income/loss for the period ( 11/20/19 to 12/31/19) and adding the FX change in translation of BL. my equity is overstated by exactly the FX difference of P&L conversion (USD to CAD for the period 11/20/19 to 12/31/19). can you please advisw what I am missing in my understanding? Thanks.
Ben, well – it would be better to see the solved example here first. S.
Hi Silvia,
I am translating functional currency (NPR) financial statements to Presentation Currency (USD) financial statements. Can you please guide me to calculate the average rate for PL items (whether to take opening and closing divided by 2 or average of all the days)? Also, whether to take buying or selling rate for translation?
Thank You.
Hi Kishan,
in fact, the average rate should be calculated from daily rates and if you search on the net, you would be able to find some average calculated for you.
Hi,
When we audit financial statements for some company (Functional currency USD) in the year end i want to convert it in the presentation currency LKR
then BS items (Monitory ) use Spot exchange rate , it’s ok
but in the PL, what rate i want to use ,
in the standers say real time exchange rate using but when we get the final USD values in the PL items
which Rate we need to use
Good morning Silvia,
I have some question for you and I trust your ability :D.
E.g 1: Total amount on trial balance: 489.76 Qatari Riyal
Total Amount Trial balance: EUR 40.16
Total QAR (Aug Rate 4.0326)= 161.95
Total Difference = 327.81
May I know the double entry for this?
Hi Omer, I have no idea what you are trying to do. Are you translating your financial statements to presentation currency? Well then are you sure you are applying this correctly? Are you translating your equity items with the year-end rate, too? Maybe would this be better to translate them at the historical rate and all assets/liabilities with the current rate? Hm.
Can someone guide me with this?
Functional currency is USD
Local currency is not USD and floating
Long term loans (over 10 year period) contracted in USD
What exchange conversion rate should be applied to get record local currency equivalent interest expense category?
Is it at historic rate (prevailing conversion rate when loan was contracted)? or prevailing rate on payment?
My thinking is interest expense should be at the historic rate. Once interest is paid out at the respective period we record the realised exchange difference element under exchange gains/losses. Is this correct?
Dear, silvia
I would like to thanks you for sharing this important kit for all accounting professionals and other related professionals. please silvia i need to be master the IFRS kit., how would you help me|?
Hi Silvia, may I reconfirm a few matters – I’m translating the whole BS and PL for consolidation purpose:
1. Should the assets and liabilities be translated at closing rate and PL be translated at average rate?
2. Should the equity items keep as-is, i.e. using the historical rates?
3. if the FS is a couple of years after the subsidiary acquisition date, should the post-acquisition reserves (I assume this is the retained earning) be kept each year at that year’s average rate (e.g. 2016 accumulated profit $100 at 2016 average rate, 2017 accumulated profit $150 at 2017 average rate, 2018 accumulated profit $200 at 2018 average rate, thus total as at 31 Dec 2018 accumulated profit to date $450 (100 + 150 + 200) all at different rate and will be kept as-is?
4. should the exchange rate translation differences be put in a separate line under Equity in the consolidated FS, or should it be put under Other Comprehensive Income, or both?
Thank you very much!
Hi Alice, please read this article first – it tackles many of your questions raised. S.
hi silvia ,
i try to understand why when if the foreign entity record in local currency that different from functional currency we remeasure to the functional currency then translate to reporting currency if functional differs reporting currency .
we we not translate the currency or remeasure only why remeasure then translate ,
Hello Silvia, I would like to know if there is any specific rule that decides whether the effect (gain or loss) of FX rates in P&L should be considered before EBITDA or below EBITDA?
Thank you very much,
Samira.
Hi Samira,
no specific rule, sorry. S.
Hi Silvia, need an understanding of IAS 21 on current Zimbabwe currency change. We have few subsidiary in Zimbabwe where as our books are in dollar but since now they have changes the currency as 1:3 & banks are also saying the all their local bank loan, net working capital will be converted using local currency & there will be a huge impact of the same. ( Eg. suppose i had a bank balance of 100$ which after introduing local currency become 33$. How to take the impact of the same?
Hi Silvia, could you please advise what is the correct way of exchange rate difference treatment. for example the works were provided in January 2019 and we accrued it in January with exchange rate of January 2019. But in February this accrual was reversed and accrued again with ex rate of February. Finally the invoice is received and paid In March. Is it correct that ex rate occurs between last accrual date (February) and payment date or ex rate should be applied between first accrual date (January) and payment date? thank you
I have a scenario where a company ha sclassified unrealised exchange gains and losses under Finance income & Finance cost.
Their accounting policy in the FS mentions “Financial income and costs comprise interest income and
costs, realised and unrealised exchange gains and losses, and fair value adjustments of shares and
derivatives where hedge accounting is not applied.” My doubt is if unrealised exchange rate gains/losses can be classified under finance income and finance cost? Finance income and cost should come from Interest received or Borrowing cost right?
Thankyou very much. I see this is an amazing site. Looking forward to improving my knowledge with many interactions with you all.
Hi Ashwin,
foreign exchange differences on the balance sheet items can enter into finance cost/income. S.
Hello Sylvia.
Thank you so much for this. I do have a question though. If i want to translate the balance sheet and income statement from functional currency to presentation currency for consolidation purpose by the parent company, what would be the double entries for subsequent measurement? would it be the current exchange difference from translation ( to increase/reduce the balance as at year end) or the difference between the amount previously recognised and the current value such that the balance as at the reporting period is the current exchange difference from translation?
Hi,
I have a question.
Company A (Presentation currency in GBP) is the holding company of Company B (presentation currency in USD) which is the holding company of Company C (presentation currency in TRY).
When Company B consolidated the result of Company C, the exchange differences arise from consolidation will be recognised in Forex Exchange Reserve.
So, what rate should I use to translate the foreign exchange reserve in Company B when I consolidate Company B result in Company A account?
Hi Silvia, appreciate if you could help out with the scenario below:
In 2017, Company A’s functional currency was determined to be AUD but presentation currency is MYR, thus creating a ‘Exchange translation reserve’. But in 2018, functional currency was then assessed to be MYR, for 2018 and all the subsequent years.
Should I recognise all the balances in Exchange translation reserve to P/L in 2018?
Thank you!
Hi Ong,
the change in functional currency is treated prospectively, so no retrospective restatement. In line with IAS 21 article 37, the exchange differences from the translation of foreign operation recognized in OCI (your exchange translation reserve) are NOT reclassified in profit or loss until the disposal of the operation – so they remain there. S.
Hi, I have a question:
I have paid in advance for stock held for resale. I received the actual invoice a month after the payment. I know that the advance payment should be translated using the transaction date according to IFRIC22. However, when the invoice is actually received and posted, which exchange rate should be used? The invoice date?
Thank you in advance.
Hi Jessica, I think this article gives all the answers. S.
Hi Silvia!
Thanks a lot for the detailed discussion on IAS21.
I have some queries. Please help me to solve the following issue.
Our functional currency is BDT. We used to purchase raw material through Usance Payable LC where the foreign currency is USD. And we maintain a single conversion rate for each currency during each month. This results in a foreign exchange gain/loss while the issuing bank made the payment to the advising bank.
Now I am confused whether the forex gain/loss incurred due to maintaining a single conversion rate for a month for each foreign currency is acceptable accounting practice or not.
Thank you so much Sylivia
This is so interesting, i used to fear IAS 21 but i am finding it cheaper.
Please keep it up for all standards.
Kindly take us a comprehensive one with example(s), about IAS 1, Presentation of financial statements, Income taxes.
Thank you so much
Hi Silvia,
We have both realized and unrealized FX gain/losses on the income statement – e.g. remeasurement of FX AR balance would be unrealized gain/loss and the following period when settled it would be realized gain/loss. We have a question on the remeasurement of a foreign currency bank account balance, I think it should be considered unrealized PnL, as that gain/loss can change for the balance in the next period, but my colleague thinks it should be a ‘realized’ gain/loss. I see that you have answered this in previous comments, as realized, but i am wondering if you consider ‘unrealized’ as a OCI item, and not a PnL impact.
thank you!
Hi Silvia, similar concern here in regards to the realized or unrealized part. I believe that translating foreign bank account balances constitutes to a realized PnL due to it being a cash item and not a paper item (i.e. invoices). Please do correct me if I am not under the same understanding.
OK, you two. There is no unrealized FX gain/loss on receivables and on bank accounts from the “IFRS” accounting view – everything is realized because you need to book it in profit or loss. As soon as it goes in profit or loss, it is “realized” in the accounting. S.
Dear Silvia,
I am working an audit and two different views have been brought up by my manager and my supervisor. On initial translation of the Trial Balance. We translated the balance sheet at spot rate on the reporting date, except for equity items that were translated at historical spot rate.
Now the question is the treatment of PPE in the balance sheet. Is the cost suppose to be translated at spot rate on reporting date or at the historical spot rate in the Balance sheet.
Thank you,
Hi Unity, it depends on what you are doing. If you are translating the balance sheet to the presentation currency, then all assets and liabilities and with the closing rate. So I would need to know more about the purpose of your translation. S.
Hi Silvia,
I adding one Q to above! If the purpose is for Consolidation. Whether we have to take the Share Capital and Retained Earnings at Historical rate or Closing rate.
Hi silvia
Excellent videos, I have been working through IFRS kit and it has been an awesome refresher and gave great understanding of IFRS concepts. I have a query and have going through determing “functional currency”. The standard does not have a lot of example or details on determining the functional currency where there are various currencies involved in the entity’ economic environment. E.g. Co is registered in India, however 80% of sales are in EUR, it buys raw materials in USD, labour costs are in INR. Generally any loans are in INR…. how would we decide functional currency in this instance some light on this or an example in the IFRS kit would be awesome, thanks! 🙂
Hi Praneith,
thank you for your kind words!
This is an excellent question. I will make a podcast episode out of it, so you will find it online within a few weeks in this section. All the best, S.
Hi Silvia
Understand that under ias21, foreign currency transactions are to be recorded at spot rate (with monetary/non monetary items adjustment at subsequent reporting dates)
My question is, what about depreciation. If an asset was purchased on january(recognised on Jan rates) and depreciated in December. Shouldn’t the December spot rate be adopted for the depreciation amount? However I have seen several examples whereby the solutions took the original historical rate.
Yes, sure, use historical rate for depreciation. Remember that once you book an asset (PPE) at the historical cost, then it’s no more in foreign currency, because it’s non-monetary. Your cost is simply equivalent in functional currency at the date of transaction and you use that cost to depreciate.
clear and concise answer, understood, thanks!
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Dear Silvia
Could you educate me on IFRS 15.
You can try here! 🙂 S.
Hello Silvia…
How often are the companies required to restate the monetary items held by them? Are the companies required to restate them at the end of each reporting period only or more than once in a single reporting period?
Hi Joshi, well, the requirement is “at the end of the reporting period” and it really depends on every single entity how frequently they issue the IFRS financial statements. Some of them do it monthly, some of them quarterly, but they have to do it at least once in a year.
For example, an entity is required to prepare and present IFRS financial statements at the end of each year but the company also has the practice of preparing interim financials for internal purpose. The company has several high value monetary items which needs to be restated. Will it not impact the foreign exchange gain or loss when restating the items on a yearly or a monthly basis? And, cannot management manipulate the financials by overstating or understating the expense/ income when the company has several monetary items and there are number of foreign transactions and the spot rate changes every day?
can I make revaluation in end of the period with average buy and sale?
Hi Sivlia,
Good learning experience. I’m little unclear. Can you kindly brief once on the steps how to adjust for unrealized profit or loss on intercompany transactions in parent and subsidiary and translation to presentation currency. Also the amount in parent books as per equity and acquisition method. Will both parent and subsidiary company will adjust unrealised gains or losses in thier books before translation. Is any adjustment Is required for realised gains or losses before translation?
Question about the proper treatment of a construction work in progress (WIP) statement. For my question, assume that the project is being managed in a local currency different from the reporting currency.
I assume that the original contract would be valued at the contract’s inception date.
Now the project has a contract change order. I am assuming that I value the change based on its inception date.
Now the revised contract (original + change orders) would be the original contract (in reporting currency) plus the change order (in reporting currency)
Is this the correct treatment? Thanks in advance!
If the company changed the functional currency, should we translate the comparative FS as well?
What rate should foreign currency payables/ receivables be converted at? Is it the Buying rate or Selling Rate.
Hi Silvia,
We are a gas distribution company and buy gas from various exploration companies. Monthly Dollar invoices are received for gas procured. We pay in Rupees.
To avoid exchange rate complications, we have entered into an agreement with the exploration comapnies such that we maintain/lock a mutually agreed exchange rate for 6 months. We therefore book our liability and make payment on such rate since its known to us.
Is IFRS 21 applicable in this scenario?
Dear Silvia,
Good article.
We are in the process of implementing Dynamics 365 and I have a question concerning Forex /PPV accounting under IFRS.
If we have our standard costs in GBP say Good A 80 GBP and we have raised a PO for 100 EUR (as it is a foreign supplier). Exchange rate at Std cost import is 0.8.
At receipt of the goods (before we receive the invoice) is 0.79.
Our postings would be: (in GBP)
Dr Inventory 80 (since we are standard costing)
Cr GRNI 79 (since €100 now equals £79 at the fx rate at receipt
Cr ? 1 (being forex difference)
Is the Cr PPV or FX difference (bearing in mind that I think that the GRNI/PO is a non monetary item)?
Thanks in advance
Mark
Hi Sivlia,
We are an Online Travel Agent and acting like an agent according to; http://www.cpdbox.com/ifrs-revenue-principal-agent/
Our revenue is the commission on trips (no package deals created by our company), price is determined by the actual operator.
I assume we have the focus on non-monetary customer prepayments and operator prepayments, both in foreign currencies (other than reporting currency EUR). We are allowed to recognize revenue once there is no cancellation option for the customer any more.
How to deal with the received prepayments and payments made to the final operators?
Example: (note: company has USD and EUR bank account)
Day 01 – customer prepayment 1.000 USD – fx to EUR = 1:1
Day 10 – prepayment by us to Operator 3.000 THB – fx to EUR= 1:30
Day 20 – prepayment by us to Operator 20.000 THB – fx to EUR= 1:25
Day 30 – cancellation date, on date of Revenue recognition:
1 EUR = 0,80 USD
1 EUR = 35 THB
According to IFRIC 22 (effective 01-01-2018) you should take the fx on the actual “transaction date”. By this, it means that we will have the following result to be determined on Day 30:
Revenue customer part: 1.000 / 1 = EUR 1.000
Revenue operator part: – 3.000 / 30 = – EUR 100
Revenue operator part: – 20.000 / 25 = – EUR 800
Total revenue result in the P&L to be taken / shown: EUR 100,-
No FX result should be shown in the report, based on IFRIC 22.
Is that the right conclusion? Or do you have a different opinion on this? Thanks for your support.
Dear Silvia Mam,
Can you please make it clear to me whether any foreign exchange differences (loss) arising out of import of capital goods bought for the start of operation of its business on its pre -operation stage can be booked or capitalized assuming it to be a pre-operating cost itself??
No, you don’t capitalize any forex gain/loss. Also, you do NOT capitalize the pre-operating costs under IFRS (unless they specifically relate to the acquisition of an item of PPE or intangible asset or other eligible asset).
Amazing building of concepts through you!
I feel some confusion while accounting for the purchase of machinery for e.g from a foreign country, so if total cost is 100,000$ and terms of payment includes downpayment as an advance to supplier and 4 instalments.then how to account for this, and do the previous payments already made if talking about 3 payment, to be brought to latest forex rate and difference computed as exchange gain finally become part of the asset?
Aashir,I think this article is for you. S.
Hello Silvia M.I read all your post and convince to go for IFRS KIT.but I have few queries,It would be great if you can contact me on my email or give me your email ID?
Waiting for your reply.
Hi Gaurav, please try resending the message to support@ifrsbox.com
Hello,
Find your article and comments to be very useful.
My query is regarding identifying of functional currency of an entity having manufacturing facilities in one country (say – India) more of domestic raw materials (partly imports too), local labor and other expenses locally, but exporting all their products to another country (say US)- the sales being designated in the currency of the foreign country to whom exports are made (in USD)and settlements also being made in this currency (USD). A portion of the earnings maybe retained in USD balances (but in an Indian bank) from time to time – essentially based on import needs if any. The pre- IFRS practise was to traslate the USD transactions into Indian Rupee. Confused about whether USD or INR will be the functional currency in this case? Indian Rupee has to be continued as the presentation currency.
Thanks & regards
Hi,
Please advise in case of devaluation of currency(i.e.:Egypt) of foreign entity do we still continue to translate foreign operation like we normally do (i.e.: balance sheet items at closing and income statement at average) or there is any other method to translate.
Thanks in advance
Dear Nishit,
devaluation itself is not a reason for different reporting. The only exception is when your economy is hyperinflationary – in this case, there are different requirements to present comparatives, etc. – there’s a specific IFRS standard for it, plus look above to the article. S.
Hi,
Please advise about non-monetary items like advance to supplier, if I have banke letter of gurantee from supplier against advanced payment, curreny revaluation for his balance as advance is correct or not?
thanks
Hi Sherif,
for advances, see above. It depends on what type of advance it is. If it’s for goods or services and you don’t assume to get the cash back, then non-monetary. S.
Dear Silvia,
we are closing year Dec 16
we have loan from 3 bank around $ 200Mil for running operation activity. we get interest invoice every month from the bank, we recognise as expenses. kindly advise as per IFRS how to treat the actual interest cost in P&L.
Regards,
Sarvesh Maurya