Foreign Exchange

Question 1

Rules for closing rate method

Answer 1

1) Assets and liabilities

in the balance sheet are translated at the CLOSING RATE

2) Share capital and pre acquisition reserves

translated at HISTORIC rate (not specified by IAS 21 could use closing rate )

3) Income and Expenses

Strictly income and expenses are translated at a spot rate (ie the rate at the transaction date )

However it is permitted to use the average rate for period if this is not significantly different

All differences (gains or losses) on exchange are taken directly to reserves

They do not affect the profit for the year