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Flashcards in Foreign Currency Translation Deck (10):
1

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.

2

Functional 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.

3

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.

4

Retained Earnings Calculation

Beginning retained earnings
+ NI or -Net loss
= sub total
-Dividends
*Ending Retained Earnings

5

Remeasurement method

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.

6

Current rate

The spot rate as of the Balance Sheet date

7

Historical rate

the rate on the date the asset was bought/sold

8

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.

9

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

10

Functional currency = Presentation currency IFRS


(comparable to Remeasurement method - US GAAP)

Assets & Liabilities -
Monetary - Current rate (spot rate at B/S date)
Nonmonetary @ Historical cost - Historical rate
Nonmonetary @ Fair value - rate when Fair value was determined.
Owner's equity - Historical rate except R/E is a calculation
Revenues, expenses, gains/losses - Historical rate (may use wtd-avg. rate for the year)

Foreign currency TL Gain/Loss - Profit or loss
EXCEPT for those FC TL G/L on nonmonetary items whose G/L go to OCI then FC TL G/L also go to OCI.