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what are the 2 situations where a foreign currency problem arises

1. a transaction is executed in a currency other than the one in which the books are maintained and must remeasure the transaction
2. the company maintains books in one currency, but needs to issue financial statements using a different one, and must translate all the accounts


what is the difference between a transactional foreign currency situation vs a translation foreign currency situation

transactions relate to financial actions taken by the company in different currencies.
translations relate to converting financial statements from one currency to another


where on the financial statements do foreign currency transaction gains/losses go

income statement under non-operating income


where on the financial statements do foreign currency translation gains/losses go

on the balance sheet under other comprehensive income


what exchange rate is used for balance sheet foreign currency remeasurement: nonmonetary assets/liabilities and contributed capital

historical exchange rate on the date of the transaction


what exchange rate is used for balance sheet foreign currency remeasurement: monetary assets / liabilities

spot rate (current rate) at balance sheet date


foreign currency financial statement remeasurement: what is the next step after the balance sheet has been translated

plug is to retained earnings,
then carry that number to the statement of retained earnings ending balance.
Subtract the beginning balance which will give you net income.
Then move on to remeasure the income statement


what exchange rate is used for income statement foreign currency remeasurement: items that DO NOT represent allocations of historical balances (depreciation amortization, COGS)

weighted-average exchange rate over the period


what are the 2 types of foreign currency TRANSACTIONS

1. operating transactions (buying / selling from a foreign company)
2. forward exchange contracts (agreement to exchange 2 different currencies at a future date, at a specific rate)


what are 3 reasons a company would enter into a foreign exchange contract agreement to exchange 2 different currencies at a future date, at a specific rate)

1. to speculate in the foreign currency in an attempt to profit from changes in valuation
2. To enter in to a fair value hedge and avoid losses on changes in existing foreign currency related asset, liability or commitment
3. To enter into a cash flow hedge and avoid losses on changes in a planned future foreign currency related transaction


IFRS - What are the 3 types of foreign currency definitions for transactions and translations

1. functional currency - the currency of the primary economic environment in which the company operates
2. foreign currency (local) - a currency other than the functional currency
3. presentational currency (reporting) - the currency in which financial statements are presented ($US)


IFRS - what are the 3 steps in the process for TRANSLATING financial statements

1. Determine the functional currency
2. Translate items into the functional currency
3. Translate items into the presentation currency


foreign currency translation

converting F/S of foreign entity to F/S in domestic currency


accounting for foreign currency transactions

1. record receivable/payable at spot rate
2. gain/loss = change in spot rate * receivable/payable


functional currency is local currency

translate from local to USD


functional currency is USD

remeasure local to USD


functional is not local and is not USD

1. remeasure local to functional
2. translate functional to USD


translation adjustments reported in



remeasurement gains/losses reported

net income


remeasurement of balance sheet items

1. monetary: use current rate
2. nonmonetary: use historical rate


remeasurement of income statement items

1. revenues & expenses: weighted average
2. depreciation, cogs, and amortization: historical rate


translation of balance sheet items

1. assets & liabilities: current rate at year end
2. equity: historical rate
3. retained earnings: roll forward


translation of income statement items

1. income & expense: weighted average
2. net income: to retained earnings


process of foreign currency translation

foreign is DiFFeRent
1. Determine Functional currency
2. translate to Functional currency
3. Remeasure to reporting currency