Presented by

Anees ur Rehman
22196
 SCOPE

Except derivative transactions & balances

within the scope of IAS 39/IFRS 9

Translating results/financial position in foreign

operation for the purpose of
consolidation - CFS

Translating results in Presentation currency

IAS 21 Definitions
Exchange Rate
Ratios of exchange for two currencies

Closing Rate
Spot exchange rate at the end of Balance Sheet date

Spot Exchange
Exchange rate for immediate delivery.
 Functional Currency
The currency of the primary economic environment in
which the entity operates
Foreign Currency
A currency other than the functional currency of an
entity

Presentation Currency
The currency in which the financial statements are
presented
 Exchange difference
Result from translating a given number of units in one currency
into and other currency at different exchange rate
 Currency that
 determines the sale price of goods and services
 influence the sale price of goods and services
 influences Labor, material, other costs
 In which funds from financing activities are generated
 in which operating cash receipts are retained
Measurement at recognition
A foreign currency transaction is a transaction when entity;

 Buys or sells goods or services

 Borrows or lends funds when the amounts payable or

receivable
denominated in a foreign currency
 acquires or disposes of assets,
 incurs or settles liabilities,

Initial recognition of a foreign currency transaction

spot exchange rate

Examples:
ABC Farm Tractors Limited’s (ABC) business is the purchase and selling of
tractors for farming. It purchase’s many tractors from the United Kingdom. On
the 10 July 2012, ABC purchased five tractors costing £20,000 each. The spot
exchange rate on that date was that £1 sterling equals €1.25 euro. ABC’s
functional currency is the Euro.

Required :
Show the journal entry (ignore inventory transactions) required to include the above
transaction in the financial statements of ABC Farm Tractors Limited’s.
Solution
Step 1: Calculate the total amount owing in sterling and convert that sterling
amount into euro i.e. £20,000 x 5 = £100,000 sterling.

Step 2: Using the spot exchange rate provided above (£1 sterling equals €1.25
euro) convert the £100,000 sterling to the equivalent euro value: £100,000 * 1.25
= €125,000.

Step 3: Prepare the journal.

The journal entry is:

Dr. Purchases – Cost of Sales – SOCI €125,000

Cr. Trade Payables - SOFP €125,000
 Monetary Assets
 Cash

 Cash equivalents

 Debt securities Items that will be received in a fixed or

determinable amount of cash
 Accounts receivable

 Notes receivable
 Non-monetary Assets

 Inventory
 Prepaid expenses
 Equity securities
Items that will not be
 Investment property
received in a fixed
 Property, plant, and equipment or determinable
amount of cash
 Intangible assets (e.g. goodwill)
 Monetary Liabilities

 Accounts payable
 Notes payable
 Bonds payable
 Leases payable
 Accruals
 Deferred tax (usual classification)
Items that will be received in a
fixed or determinable
amount of cash
 Non monetary Liabilities

 Deferred income
Items that will not be received
in a fixed or determinable
 Government grant amount of cash
Measurement at the end of the reporting
period

Revalued Non
Monetary items Non-Monetary
monetary

Rate at
Rate at Closing Rate at
Transaction
rate revalued date
rate
 Exchange difference

exchange difference is the difference resulting from translating a

given number of units of one currency into another currency at
different exchange rates.

Exchange differences are taken to profit or loss in the period in which they arise.
Example 1
Blue bird Limited entered into the
following foreign currency transaction.

30.11.2016 Purchased goods from Germany amounting to

Euro € 1,000.

The relevant exchange rates are as follows:

1 Euro € is equal to Pakistani rupee

30.11.2016 100
31.12.2016 105

Required: Record the above transactions in the books of blue bird Limited for the
years ended 31st December 2016.
Solution

The accounting treatment for the transactions for the year-ending 31st December 2016 is
as follows

30.11.2016 Dr. Purchases– Rs.100,000 (1,000*100)

Cr. A/c Payables – Rs.100,000

31.12.2016 Dr. Expense– Rs.5,000

Cr. Trade Payables – Rs.5,000

The Rs. 5,000 is an exchange difference
that arises due to the change in the exchange rates from the

30.11.2011 to the 31.12.2011

i.e. 1,000*5 = 105,000. The difference between Rs.100,000 and

Rs.105,000 is Rs. 5,000.
Example 2
Robin & Robin Limited imports marquees from the UK. It had the following
transactions with its UK counterpart;

30.09.2010 Purchased goods amounting to Sterling £80,000.

31.03.2011 Paid for the goods

The relevant exchange rates are as follows:

£1 sterling equals in Euro €

30.09.2010 €1.20
31.12.2010 €1.25
31.03.2011 €1.00

Required: Record the above transactions in the books of Robin & Robin
Limited for the years ended ;
31st December 2010 and 31st December 2011.
 Solution

The accounting treatment for the transactions for the year-ending 31 December 2010 and 2011 is
as follows:

30.09.2010 Dr. Purchases – 66,667 (£80,000/1.20)

Cr. A/C Payables– €66,667

31.12.2010 Dr. Trade Payables – € 2,667

Cr. Gain– € 2,667
The €2,667 is an exchange difference that arises due to the change in the exchange rates
from the
30.09.2010 to the 31.12.2010 i.e. £80,000/1.25 = €64,000.
The difference between

€66,667 and €64,000 is €2,667.

31.03.2011 Dr. Trade Payables €66,667

Dr. loss €13,333
Cr. Bank – €80,000
(£80,000/1.00)
Translate from functional currency to presentation currency

Asset and Income &

liabilities expenses

Transaction
Closing
date
Rate
Thank you