Flashcards in Foreign Currency Translation Deck (10):
Foreing Currency Translation
The process of expressing in the reporting currency of the enterprise those amounts that are denominated or measured in a different currency.
the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment in which an entity primarily generates and expends cash.
Current rate method - US GAAP
Key word to look for : Translating
use this method if the Functional currency is the Local currency unit (the currency local to that country). As long as there's no high inflation (100% over 3 years)
Assets - Current rate (spot rate at the B/S date)
Liabilities - Current rate
Owner's equity - Historical rate
except R/E- calculation
Revenues, expenses, gains and losses- Weighted average rate for the year.
foreign currency transaltion gain/loss is shown as a Cumulative Translation Adj in OCI.
Retained Earnings Calculation
Beginning retained earnings
+ NI or -Net loss
= sub total
*Ending Retained Earnings
key word: remeasuring
Use it when the Functional currency is the US Dollar OR Local currency Unit in highly inflationary economy (100% over 3 years)
Assets and liabilities: Monetary - Current rate Nonmonetary - Historical rate
Owners Equity- Historical rate except R/E use calculation
Revenues, expenses, gains and losses - Weighted Avg. rate for the year EXCEPT
Amort Exp and Dep Exp (nonmonetary assets) - Historical rate
Foreign currency Translation Gain/Loss is shown as a component of Continuing Operations.
The spot rate as of the Balance Sheet date
the rate on the date the asset was bought/sold
For IFRS reporting purposes - currencies
Functional currency - currency of the primary economic environment in which the entity operates.
Foreign currency- currency other than the functional currency.
Presentation currency - Currency in which the F/S are presented.
Funtional currency ≠ Presentation currency IFRS
(comparable to Current rate method IFRS)
Assets and liabilities - Current rate (sport rate at the B/S date)
Owner's Equity - Historical rate except R/E is a calculation
Revenues, expenses, gains and losses - Historical rate (but may use wtd-avg. rate for the year)
Foreign currency TL Gain/Loss: OCI