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FOREIGN CURRENCY TRANSLATION

FOREIGN CURRENCY TRANSLATION. IFRS for SME (30.1-30.27) vs IAS 21. Summary. IFRS for SME. IAS 21. 1 (Objective) 9-11 20-22 23,28,30 15,32 . Scope 301

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FOREIGN CURRENCY TRANSLATION

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  1. FOREIGN CURRENCY TRANSLATION IFRS for SME (30.1-30.27) vs IAS 21

  2. Summary IFRS for SME IAS 21 1 (Objective) 9-11 20-22 23,28,30 15,32 Scope 301 Functional Currency 30.2-30.5 Reporting Foreign Transactions in FC • Initial recognition 30.6-30.8 • End of Subsequent Periods 30.9 – 30.11 • Net Investment in Foreign Ops 30.12-30.13

  3. Summary IFRS for SME IAS 21 35-37 38-43 45,47 51-54 • Change in FC 30.14-30.16 Use of Presentation Currency • Translation 30.17-30.21 • Translation of a Foreign Ops 30.22-30.23 Disclosures 30.24-30.27

  4. DEFINITIONS IFRS for SME IAS 21 8, SAME Functional Currency • Currency of the primary economic environment in which the entity operates. (30.2) Presentation Currency • Currency in which the financial statements are presented. (Glossary)

  5. Functional Currency IFRS for SME IAS 21 20, SAME • General All components of the financial statements are measured in the functional currency. All transactions entered into in currencies other than the functional currency are treated as transactions in a foreign currency. (30.6)

  6. Functional Currency IFRS for SME IAS 21 21, SAME • Foreign Currency Transactions A transaction in a foreign currency is recorded in the functional currency using the exchange rate at the date of transaction . (30.7)

  7. Example OMG Company was formed on January 1, 2010, when the exchange rate is P40: $1. OMG is domiciled in Occidental Mindoro, Philippines. The following are the transactions in Year 1:

  8. Functional Currency IFRS for SME IAS 21 23, SAME • Foreign Currency Transactions At the end of each reporting period, foreign currency monetary balances are translated using the exchange rate at the closing rate. (30.9)

  9. Functional Currency IFRS for SME IAS 21 23, SAME • Foreign Currency Transactions Non-monetary balances denominated in a foreign currency and carried: • At cost: reported using the exchange rate at the date of the transaction. • At fair value: reported using the exchange rate at the date when the fair values were determined. (30.9)

  10. Example Suppose Php is the Functional Currency. The accounting books were in USD. (Closing rate is P45:$1)

  11. Example

  12. Functional Currency IFRS for SME IAS 21 32 DIFFERENCE: Exchange differences on a monetary item that forms part of a net investment in a foreign operation are reclassified from equity to profit or loss on disposal of the foreign operation. • Recognition of Exchange Differences Any cumulative exchange differences on a monetary item that forms part of a net investment in a foreign operation that were previously recognized in equity shall not again be recognized in profit or loss on disposal of a foreign operation. (30.13)

  13. Functional Currency IFRS for SME IAS 21 35-37, SAME • Change in Functional Currency A change is justified only if there are changes in underlying transactions, events and conditions that are relevant to the entity. The effect of a change in functional currency is accounted for prospectively from the date of the change. (30.14-30.16)

  14. Presentation Currency IFRS for SME IAS 21 38, SAME • General An entity may choose to present its financial statements in any currency. If the presentation currency differs from the functional currency, an entity translates its results and financial position into the presentation currency. (30.17)

  15. Presentation Currency IFRS for SME IAS 21 39 DIFFERENCE: Cumulative translation differences on foreign operations initially recognized in equity are recycled to profit or loss upon disposal of the foreign operation. • Translation to the Presentation Currency The assets and liabilities are translated at the closing rate at the date of the statement of financial position; income and expenses are translated using the exchange rates at the dates of the transactions. All resulting exchange differences are recognized in other comprehensive income. (30.18)

  16. Example Suppose Php is the Presentation Currency. The accounting books were in USD. (Closing rate is P45:$1)

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