Ias 21 Afa

for Accounting Professionals
IAS 21 The effects of changes in foreign exchange rates

2011
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Robin ,oyce
!rofessor of the "hair of
International .anking and $inance
$inancial ni)ersity
under the -o)ern%ent of the Russian $ederation
1isiting !rofessor of the Siberian Acade%y of $inance and .anking 9oscow( R"ssia )*11 3!dated
IAS 21 The effects of changes in foreign
exchange rates
"ontents
1* "onsolidation Introduction
3
2* 2efinitions
4
3* IAS 21 for .anks
5
4* $oreign "urrency Transactions in the 0or%al "ourse of
.usiness
6
5* Initial Recognition of a Transaction
7
6* Reporting at .alance Sheet 2ates
8
7* $inancial State%ents of $oreign 8perations
9
9* 2isposal of a $oreign 8peration
17
:* 2isclosure Re;uire%ents
19
10* Annex < Exa%ples '$oreign operations with non'
coter%inous year ends 19
11* #ultiple "hoice (uestions
21
12* Exercise (uestions
24
13* Solutions
28
14* I$RS $ra%ework
30

:ote; 9aterial rom the ollowin. 4ricewaterho"se&oo!ers !"blications has been
"sed in this workbook;
%!!l#in. IFRS ( IFRS :ews( %cco"ntin. Sol"tions
1* "onsolidation Introduction
Aim
The aim o this workbook is to assist the individ"al in "nderstandin.
consolidation methodolo.# or IFRS and the role o orei.n c"rrenc#
both in consolidated statements and sin.le+"ndertakin. inancial
statements- It also covers orei.n c"rrenc# transactions arisin. rom
trade-
Consolidation Approach
Beore commencin. a consolidation( the acco"ntant sho"ld have the
"ll inancial statements o the !arent and s"bsidiaries !rod"ced as
o the same date( and havin. "sed the same acco"ntin. !olicies-
Where !ossible( all s"bsidiar# #ear+ends m"st be the same as the
!arent "ndertakin.- 3nder I%S )<( the ma0im"m !ermitted
dierence is $ months-
%d'"stment sho"ld be made or an# si.niicant dierences created
b# an# s"bsidiar# havin. a dierent acco"ntin. date-
The len.th o re!ortin. !eriods and an# dierence in the re!ortin.
dates sho"ld be consistent rom !eriod to !eriod-
Transactions between .ro"! "ndertakin.s sho"ld be listed( and
balances between .ro"! "ndertakin.s sho"ld be a.reed and listed-
Where an "ndertakin. has been !"rchased( the inancial statements
at the time o ac1"isition sho"ld be on hand- Similarl#( where an
"ndertakin. has been sold( the inancial statements on the date o
sale sho"ld be available-
S!readsheets are ideal or !rod"cin. consolidated balance sheets
and income statements( altho".h bes!oke consolidated sotware is
available-
8T=ER "8#!RE=E0SI1E I0"8#E
I%S 1 introd"ced Other &om!rehensive Income as a inancial
statement-
%ll movements into and o"t o reval"ation reserves and orei.n
c"rrenc# translations (both in /1"it#) are recorded here-
If a gain& or loss& is reported in profit and loss& any related
exchange gain& or loss& will also be reported in profit and loss*
If a gain& or loss& is reported in 8ther "o%prehensi)e Inco%e&
any related exchange gain& or loss& will also be reported in
8ther "o%prehensi)e Inco%e*
2* 2efinitions
Undertaking
%n "ndertakin. is an# b"siness( either incor!orated or
"nincor!orated-
Parent
% !arent is an "ndertakin. that controls another "ndertakin.-
Subsidiary
% s"bsidiar# is an "ndertakin. that is controlled b# another-
Group, or business combination
Two or more com!anies where one com!an# controls the other(s)-
=
7issimilar b"siness activities m"st be consolidated( i the# controlled
b# the !arent "ndertakin.-
Control
&ontrol is the !ower to .overn the inancial and o!eratin. !olicies o
an "ndertakin. to obtain beneits-
Indications o control are;
Ownershi! o more than >*? o the votin. ri.hts-
/ective control over more than >*? o the votin. ri.hts- For
e0am!le( a h"sband owns $*? and a wie owns =*?-
%s the# are connected !arties( the# can e0ercise control over
the s"bsidiar#-
&ontrollin. the com!osition o the board o directors
Fair value
Fair val"e is the price that would be recei)ed to sell an
asset& or paid to transfer a liability& in an orderly
transaction between %arket participants at the
%easure%ent date* >I$RS 13?
Monetary items
9onetar# items are mone# held( assets receivable( and liabilities
!a#able( in cash-
Associate
%n "ndertakin. in which the !arent has si.niicant inl"ence( b"t is
neither its s"bsidiar#( nor !art o a 'oint vent"re o the !arent-
Indications o si.niicant inl"ence are;
Ownershi! o )*+>*? o the votin. shares
Re!resentation on the Board o 7irectors
Joint enture
% 'oint vent"re is an "ndertakin. s"b'ect to the 'oint control o two or
more enter!rises- The 'oint control is .overned b# a contract
between the !arties-
Foreign !peration
% orei.n o!eration is a branch( associate( 'oint vent"re or s"bsidiar#(
where the activities are cond"cted in a dierent co"ntr# to that o the
!arent "ndertakin.-
Presentation Currency
The !resentation c"rrenc# is that "sed in the !arent@s and in the
consolidated inancial statements-
FU"C#$!"A% CU&&'"C(
The "nctional c"rrenc# is the c"rrenc# o the !rimar# economic
environment in which the "ndertakin. o!erates-
Foreign Currency
Forei.n c"rrenc# is an# c"rrenc# other than the "nctional c"rrenc#-
')change *i++erence
/0chan.e dierence is the dierence calc"lated rom re!ortin. the
same n"mber o "nits o a orei.n c"rrenc# at dierent e0chan.e
rates-
>
Closing &ate
The closin. rate is the s!ot e0chan.e rate at the balance sheet date-
"et $nvestment in a Foreign Undertaking
The net investment in a orei.n o!eration is the !arent@s share o the
net assets o the "ndertakin.-
Spot e)change rate
The S!ot e0chan.e rate is the e0chan.e rate or immediate deliver#-
3* IAS 21 for .anks
The ma'orit# o bank transactions in orei.n c"rrenc# relate to
inancial instr"ments- These are reval"ed dail# in most co"ntries(
"sin. the rates !rovided b# the &entral Bank( with reval"ation
dierences .oin. to the income statement-
This treatment is the same "nder IFRS (with the e0ce!tion o
available+or+sale inancial instr"ments( where the reval"ation
dierence will .o to e1"it# "ntil the# are sold)-
7ealin. in orei.n c"rrencies involves another la#er o risk or Banks
(Barin.s Bank in the 3K was bankr"!ted b# s!ec"latin. on the
Aa!anese Ben)( b"t also or bank clients( who oten are "nable (or
"nwillin.) to "ll# mana.e their orei.n c"rrenc# risk-
IFRS < re1"ires banks to detail e0!os"re and the mana.ement o
their orei.n e0chan.e risk in inancial statements-
I$RS : applies to %any foreign currency deri)ati)es and&
accordingly& these are excluded fro% the scope of IAS 21*
=owe)er& those foreign currency deri)ati)es that are not within
the scope of I$RS : >for exa%ple? so%e foreign currency
deri)ati)es that are e%bedded in other contracts? are within the
scope of IAS 21*
In addition& IAS 21 applies when an entity translates a%ounts
relating to deri)ati)es fro% its functional currency to its
presentation currency*
4* $oreign "urrency Transactions in the 0or%al "ourse of
.usiness
#ransactions and $nvestments in Foreign Currencies
Transactions and investments in orei.n c"rrencies increase
b"siness risk d"e to the c"rrenc# l"ct"ations a.ainst the national
c"rrenc#-
2oldin. an# assets( or liabilities( denominated in orei.n c"rrenc#
entails a c"rrenc# risk- There is a risk that #o" will make a !roit or
loss( i the e0chan.e rate chan.es when settlement is made-
Techni1"es s"ch as hed.in.( orward contracts and o!tions ma# be
em!lo#ed to red"ce risk-
International b"siness necessitates man# irms tradin. in orei.n
c"rrencies- The time between 1"otin. a !rice i0ed in a orei.n
c"rrenc#( and inall# receivin. the "nds sho"ld be minimised to limit
risk-
Exa%ple;
C
Bo" 1"ote a !rice o D1*** or an item- Based on toda#@s e0chan.e
rate( #o" will make a !roit o )>?- 2owever( the Ro"ble stren.thens
a.ainst the D b# 1*? !er month( eliminatin. #o"r !roit beore #o"
receive the cash in month >;
#onth Action @
Exchange
Rate
Roubles
Re)enue
Rouble
s
"ost
Roubles
!rofit
ABoss
1 E"ote 1*** $*(** $**** ))>** <>**
) Receive Order 1*** )<(** )<*** ))>** =>**
$ 4rod"ction 1*** )=($* )=$** ))>** 18**
= 7eliver# 1*** )1(8< )18<* ))>**
> 4a#ment 1*** 1,(C8 1,C8* ))>**
While this ill"stration is e0treme( the risk is alwa#s !resent-
Investments( s"ch as a orei.n branch or s"bsidiar#( increase the
time that the !arent is at risk to c"rrenc# l"ct"ations-
The orei.n o!eration ma# trade !roitabl#( b"t the investment ma#
be adversel# hit b# a all in the orei.n c"rrenc# a.ainst that o the
!arent-
&ommission costs( inc"rred in b"#in. or sellin. orei.n c"rrencies(
red"ce !roits- /0chan.e controls ma# inhibit the !arent rom
re!atriatin. "nds to red"ce risk-
% irm needs to know its orei.n e0chan.e e0!os"re( rom
transactions and investments- It needs to develo! and reine a
strate.# to handle l"ct"ations in each c"rrenc# to which it is
e0!osed-
When a .ain( or loss( on e0chan.e is realised b# settlin. a orei.n
c"rrenc# item( nothin. more can be done( e0ce!t to "!date the
books o acco"nt-
Onl# a review o the "nrealised .ains and losses !rovides
o!!ort"nities or !erormance im!rovement-
5* Initial Recognition of a Transaction
I a com!an# transacts b"siness( or holds assets or liabilities in a
orei.n c"rrenc#( the transaction sho"ld be acco"nted or at the
e0chan.e rate on the da# o the transaction- The rate that sho"ld be
"sed is the mid+market rate Fs!ot@ rate on the da# the transaction
takes !lace-
%n avera.e rate ma# be "sed or a week( or a month( or all
transactions in each orei.n c"rrenc#( i there is no material
l"ct"ation in the e0chan.e rates-
<
The date o the transaction is the date when the transaction is
contracted( or reco.nised( rather than the date o receivin. (or
!a#in.) cash- I the recei!t o cash is earlier( a !a#ment in advance
is re.istered- I later( an acco"nt receivable( or !a#able( wo"ld be
reco.nised at the s!ot rate-
Exa%pleC
On 1
st
Aan"ar#( #o" sell D1** o services to a orei.n c"stomer on
credit- The e0chan.e rate is D1G$* Ro"bles-
In the R"ssian books o acco"nt( #o";
7ebit %cco"nts Receivable $***
&redit Sales $***
The cash is received in D on Febr"ar# 1
st
when the e0chan.e rate is
D1 G )> Ro"bles- The Ro"ble is stron.er and the dollar weaker
com!ared to the rate on Aan"ar# 1
st
-
7ebit &ash )>**
7ebit /0chan.e Hoss >**
&redit %cco"nts Receivable $***
In this case( less Ro"bles (>**) are received than wo"ld have been
the case had the D1** been received on 1
st
Aan"ar#-
I the dollar had stren.thened a.ainst the Ro"ble( b# Febr"ar# 1
st
(
more Ro"bles wo"ld have been received in e0chan.e or the D1**-
For e0am!le i the rate had been D1G=* Ro"bles( this wo"ld have
created an e0chan.e .ain o 1*** Ro"bles-
Gain or %oss,
I #o" kee! #o"r books in Ro"bles( b"t trade is denominated in D(
movements in the D a.ainst the Ro"ble will have the ollowin.
res"lts rom #o"r D denominated assets and liabilities;
D Rises D Falls
D %ssets 6ain Hoss
D Hiabilities Hoss 6ain
6* Reporting at .alance Sheet 2ates
#onetary ite%s (mone# held( assets receivable( and liabilities
!a#able( in cash or cash e1"ivalents) will be re!orted at the closin.
rate (mid+market rate on the balance sheet date)-
0on'%onetary ite%s (s"ch as !ro!ert#( !lant and e1"i!ment)
sho"ld be re!orted at the e0chan.e rate o the transaction-
This will either be the e0chan.e rate o historic cost( or the val"ation
date( where air val"es are "sed-
Exa%pleC
/1"i!ment was bo".ht rom abroad on Aan 1
st
( b"t had not been
!aid or b# 9arch $1
st
( when the !eriod ended-
8
The e0chan.e rates were;
Aan"ar# 1
st
D1G$* Ro"bles-
9arch $1
st
D1G)= Ro"bles-
The cost o the e1"i!ment was D)***( and de!reciation or the
!eriod was >? o cost-
In the R"ssian books o acco"nt( the ollowin. balances wo"ld
a!!ear;
/1"i!ment cost C****
7e!reciation $***
:et book val"e ><***
%cco"nts !a#able =8***
/0chan.e .ain
1)*** (re acco"nts !a#able)
0otesC "ost D 2000E30D 60000
2epreciationD 5F >60000?D 3000
Accounts !ayableD 2000E24D 49000
Exchange -ainD 2000E >30'24?D 12000

The D all a.ainst the Ro"ble .ives a beneit when settlin. the
acco"nts !a#able- 2ad the D risen( the D)*** wo"ld have cost more
Ro"bles( .eneratin. an e0chan.e loss in the !eriod-
Accounting #reatment o+ ')change *i++erences
/0chan.e dierences on monetar# items sho"ld be reco.nised in
the !eriod@s income statement( even i the dierence has not been
realised (b# settlement) b# the balance sheet date- I it has not been
settled( then "rther e0chan.e dierences ma# occ"r in later !eriods-
%n e0ce!tion to this is where a monetar# item orms !art o the
!arent@s net investment in a orei.n o!eration (s"ch as an inter
com!an# loan) the e0chan.e dierence sho"ld be recorded in
e1"it#( "ntil the dis!osal o the net investment- 3!on dis!osal( it will
be recorded as a .ain( or loss( in the income statement-
Exa%ple;
% holdin. com!an# sets "! a s"bsidiar# abroad with net assets o D1
million-
Bo" str"ct"re this s"bsidiar# with D1*** o share ca!ital and
D,,,-*** o inter com!an# loan-
The inter com!an# loan sho"ld be considered as !art o the net
investment in the s"bsidiar# (reerred to as ;uasi'capital) and an#
e0chan.e dierences relatin. to it will be recorded in chan.es to the
val"e o e1"it#-
I the e0chan.e rate when the com!an# was set "! was D1G$*
Ro"bles and at the balance sheet date was D1G$) the val"e o the
loan has altered b#
I,,,(*** 0 ($)+$*)G1,(,8*J-
The 1,(,8* e0chan.e .ain sho"ld be added to the e1"it# o the
holdin. com!an#-
The "ndertakin. that has a monetar# item receivable rom or
!a#able to a orei.n o!eration ma# be an# s"bsidiar# o the .ro"!-
,
For e0am!le( an "ndertakin. has two s"bsidiaries( % and B-
S"bsidiar# B is a orei.n o!eration-
S"bsidiar# % .rants a loan to S"bsidiar# B- S"bsidiar# %Ks loan
receivable rom S"bsidiar# B wo"ld be !art o the "ndertakin.Ks net
investment in S"bsidiar# B i settlement o the loan is neither
!lanned( nor likel# to occ"r in the oreseeable "t"re- This wo"ld also
be tr"e i S"bsidiar# % were itsel a orei.n o!eration-
"on-monetary items that are measured at +air value
:on+monetar# items that are meas"red at air val"e in a orei.n
c"rrenc# shall be translated "sin. the e0chan.e rates at the date
when the air val"e was determined-
This .ro"! is rare or most "ndertakin.s- I a !ro!ert# has been
reval"ed in 3SD and the "nctional c"rrenc# o the "ndertakin. is
Ro"bles( the val"ation is translated at the s!ot rate o the date on
which it was val"ed-
When it is reval"ed a.ain in 3SD( then the reval"ation is translated
at the s!ot rate o the new val"ation-
7* $inancial State%ents of $oreign 8perations
Presentation Currency
The !resentation c"rrenc# o a .ro"! is the c"rrenc# o the IFRS
statements( and ma# be dictated b# the nation in which the irm is
located( or the inancial market in which its sec"rities are sold-
&onsolidation o orei.n o!erations "ses the r"les o !resentation
c"rrenc#-
IFRS statements ma# be !rod"ced "nder more than one
!resentation c"rrenc# to meet demands o readers- For banks(
!rovidin. statements in dierent c"rrencies ma# be o interest to
(international) corres!ondent banks-
Functional Currency
3nderl#in. the !resentation c"rrenc# is the "nctional c"rrenc#-
There is onl# one "nctional c"rrenc# or each com!an#-
This relects the c"rrenc# o the o!erations( rather than that o the
"sers o the acco"nts-
The "nctional c"rrenc# is central to re!ortin. "nder IFRS- The
res"lts o all o!erations will be translated into the "nctional c"rrenc#-
The res"lts will then be translated into the !resentation c"rrenc#-
Whilst the !arent irm@s national c"rrenc# will be the a!!ro!riate
re!ortin. choice in most cases( man# irms o!erate in a commercial
world dominated b# other c"rrencies-
9ost com!anies in R"ssia will have R"ssian Ro"bles as their
"nctional c"rrenc#( as most o their transactions are made in
Ro"bles-
The "nctional c"rrenc# relects the "nderl#in. transactions( events
and conditions that are relevant to it-
%ccordin.l#( once determined( the "nctional c"rrenc# is not chan.ed
"nless there is a chan.e in those "nderl#in. transactions( events
and conditions-
1*
Those irms in the oil ind"str#( re.ardless o the co"ntr# in which
the# o!erate( are dominated b# transactions in 3SD- To !re!are
acco"nts in c"rrencies other than 3SD wo"ld lead to ma'or chan.es
in res"lts d"e to e0chan.e movements between the 3SD and their
home c"rrencies-
*etermining #he Functional Currency
The !rimar# economic environment in which an "ndertakin.
o!erates is normall# the one in which it .enerates cash-
The "nctional c"rrenc# is that which mainl# inl"ences sales !rices
or .oods and services( and o the co"ntr# which inl"ences costs o
labo"r and materials-
Other actors that ma# inl"ence the determination o the "nctional
c"rrenc# are;
The c"rrenc# in which "nds rom inancin. activities are
.enerated (debt and e1"it# instr"ments)-
The c"rrenc# in which recei!ts rom o!eratin. activities are
"s"all# ke!t-
The ollowin. additional actors are considered in determinin. the
"nctional c"rrenc# o a orei.n o!eration( and whether its "nctional
c"rrenc# is the same as that o the re!ortin. "ndertakin. (the
re!ortin. "ndertakin.( bein. the owner o the orei.n o!eration as its
s"bsidiar#( branch( associate or 'oint vent"re);
whether the activities o the orei.n o!eration are carried o"t
as an e0tension o the re!ortin. "ndertakin.( rather than
bein. carried o"t with a si.niicant de.ree o a"tonom#-
whether transactions with the re!ortin. "ndertakin. are a
hi.h( or low( !ro!ortion o the orei.n o!eration@s activities-
whether cash lows rom the activities o the orei.n o!eration
directl# aect the cash lows o the re!ortin. "ndertakin.( and
are readil# available or remittance to it-
whether cash lows rom the activities o the orei.n o!eration
are s"icient to service debt obli.ations( witho"t "nds bein.
made available b# the re!ortin. "ndertakin.-
When the above indicators are mi0ed and the "nctional c"rrenc# is
not obvio"s( mana.ement "ses its '"d.ment to determine the
"nctional c"rrenc# that most aith"ll# re!resents the economic
eects o the "nderl#in. transactions( events and conditions-
/ach irm determines its "nctional c"rrenc# or itsel- The same
"nctional c"rrenc# will a!!l# to all .ro"! members on consolidation-
%ll orei.n c"rrenc# items will be translated into the "nctional
c"rrenc#-
Exa%ple; $unctional currency deter%ination
3ndertakin. & o!erates an inormation distrib"tion website dealin.
in c"rrent aairs( weather and other news- The website is written in
9andarin( and it is estimated that ,>? o "sers who access the
website reside in &hina- The "ndertakin. .enerates reven"e thro".h
the !lacement o advertisement Fbanners@on the website@-
The c"stomers who !lace banners on the website are all
m"ltinational com!anies-
11
The servers are located in Aerse# or ta0 !"r!oses-
The costs o maintainin. the website are !aid to em!lo#ees in &hina
in dollars- The c"stomers are invoiced in dollars-
The "ndertakin.@s "ndin. is held in vario"s c"rrencies( incl"din.
e"ros( dollars and sterlin.- Reven"es and costs are denominated in
dollars( as it is a more stable and li1"id c"rrenc# than the &hinese
#"an-
What is the "nctional c"rrenc# o the "ndertakin.L
The "nctional c"rrenc# o the "ndertakin. is the &hinese #"an-
%n "ndertakin.@s "nctional c"rrenc# is the c"rrenc# o the !rimar#
economic environment in which the "ndertakin. o!erates-
%n "ndertakin.@s "nctional c"rrenc# will thereore be driven !rimaril#
b# the environment that determines the sellin. !rice o its services
and the costs that it needs to inc"r to !rovide those services-
The c"stomers that "tilise the website reside mainl# in &hina( so the
!rice at which the "ndertakin. can sell its advertisin. services will be
driven b# the &hinese( not the 3S( econom#-
%ltho".h the "ndertakin. !a#s its costs in dollars( the rem"neration
that em!lo#ees will demand will be driven b# the &hinese( and not
the 3S( econom#- The act that items are denominated in dollars is
not relevant in this case-
%n "ndertakin.Ks "nctional c"rrenc# relects the "nderl#in.
transactions( events and conditions that are relevant to it-
%ccordin.l#( once determined( the "nctional c"rrenc# is not chan.ed
"nless there is a chan.e in those "nderl#in. transactions( events
and conditions-
Exa%ple; "hange of functional currency
3ndertakin. & is a 3K com!an# which is a!!l#in. I%S )1 or the irst
time in its inancial statements or the #ear endin. $1 7ecember
)*MC-
3ndertakin. & !revio"sl# !re!ared its "ndertakin. inancial
statements in 3S dollars-
2owever( on a!!l#in. the criteria in I%S )1( the "nctional c"rrenc# is
considered to be !o"nd sterlin.- There are no other chan.es in
circ"mstances that wo"ld lead to a chan.e in "nctional c"rrenc#-
&an & acco"nt or the chan.e in "nctional c"rrenc# !ros!ectivel#
rom the date o chan.eL
:o( this is allowed i there is a chan.e in "nctional c"rrenc# d"e to a
chan.e in the "nderl#in. transactions( events and conditions-
In this case there has not been a chan.e in circ"mstance( so the
above r"les are not a!!licable-
Instead( I%S )1 m"st be a!!lied retros!ectivel# in "ll as a chan.e in
acco"ntin. !olic#-
In order to calc"late what the I%S )1 !rior !eriod ad'"stment sho"ld
be in the "ndertakin. inancial statements( it will be necessar# to;
(a) retranslate the !revio"sl# !resented local c"rrenc# (3SD)
inancial statements into sterlin.N and
1)
(b) restate those sterlin. n"mbers as i I%S )1 had been a!!lied
retros!ectivel# in "ll( that is as i sterlin. had alwa#s been the
"nctional c"rrenc#-
#ranslation o+ local currency to +unctional currency
/ach transaction is translated to the "nctional c"rrenc# at the
ollowin. e0chan.e rate;
#onetary ite%s (mone# held( assets receivable( and liabilities
!a#able( in cash) will be re!orted at the rate r"lin. on the balance
sheet date (mid market closin. rate)-
0on'%onetary ite%s (s"ch as !ro!ert#( !lant and e1"i!ment) will
be re!orted at the e0chan.e rate o the transaction-
This will either be the e0chan.e rate o historic cost( or the val"ation
date( where air val"es are "sed-
/0am!les o these transactions are in the !revio"s section-
#ranslation o+ +unctional currency to presentation currency
Assets and liabilities
The closin. rate o the !resentation c"rrenc#( on the balance sheet
date( sho"ld be "sed or assets and liabilities o a orei.n
"ndertakin.- This incl"des .oodwill and air val"e ad'"stments-
Inco%e and expenses
Income and e0!enses sho"ld be translated at the rate o the da# o
transactions-
The net exchange differences res"ltin. sho"ld be classiied as
e1"it#-
This will be seen when the chan.e in the net assets( e0!ressed in
the !resentation c"rrenc#( diers rom the net !roit( e0!ressed in the
!resentation c"rrenc#-
The net !roit will be e0!ressed in a com!o"nd rate( relectin.
transactions thro".ho"t the !eriod-
Oten( individ"al monthl# acco"nts are a..re.ated when !rod"cin.
1"arterl# or ann"al acco"nts( each translated at their own e0chan.e
rate( to calc"late the net !roit( e0!ressed in the !resentation
c"rrenc#-
Exa%ple;
1$
% orei.n vent"re is started on Aan"ar# 1
st
with D1 million o inventor#
!rovided b# third !arties-
The inventor# is sold or D1-1 million in vario"s transactions d"rin.
the month-
D1 million is !aid to settle the acco"nts !a#able( leavin. D1***** in
cash on $1
st
Aan"ar#-
Aan"ar#1
st
D1G$* Ro"bles-
Aan"ar#$1st D1G)) Ro"bles-
%vera.e rate D1G)C Ro"bles
Translations to Ro"bles are as ollows;
&ash balance GD1**-***O))G )() million Ro"bles
(!eriod+end rate)
:et !roit GD1**-***O)CG )(C million Ro"bles (avera.e
rate)
/0chan.e loss G *(= million Ro"bles
(dierence classiied as e1"it#)
The cash balance determines the overall res"lt( as this is the
increase in the val"e o the investment-
The net !roit does not "ll# relect the month+end balance sheet(
and the e0chan.e loss is needed to balance the acco"nts-
Onl# when the cash is re!atriated to the !arent will the e0chan.e
loss (or .ain) be realised-
2owever the ("nrealised) .ain( or loss will be calc"lated each month(
and transerred to e1"it#-
Where the orei.n o!eration was owned in a !revio"s !eriod( as
o!!osed to bein. !"rchased( or ina"."rated( in the !eriod( the
o!enin. net investment o the !eriod needs to be restated at the
closin. e0chan.e rate-
/0chan.e dierences are transerred to e1"it#-
Exa%pleC
st
The inventor# is sold or D1-1 million in vario"s transactions d"rin.
the month-
D1 million is !aid to settle the acco"nts !a#able( leavin. D1***** in
cash on $1
st
Aan"ar#-
This tradin. !attern is re!eated in Febr"ar#-
Aan"ar# 1
st
D1G$* Ro"bles-
Aan"ar# $1
st
D1G))Ro"bles-
%vera.e rate D1G)CRo"bles
Febr"ar# 1
st
D1G)>Ro"bles
Febr"ar# )8
th
D1G$<Ro"bles
%vera.e rate D1G$1Ro"bles
,anuary
1=
&ash balance GD1*****O))G)()million Ro"bles (!eriod+end rate)
:et !roit GD1*****O)C G)(Cmillion Ro"bles(avera.e rate)
/0chan.e loss G*(=million Ro"bles(dierence)
(classiied as e1"it#)
$ebruary
Restate o!enin. cash balance P closin. rate;
D1***** O ($<+))) G 1(>million Ro"bles G e0chan.e .ain (classiied
as e1"it#)
&ash balance GD)***** O $< G<(=million
Ro"bles (!eriod+end rate)
:et !roit G D1***** O $1 G$(1million Ro"bles
(avera.e rate)
/0chan.e .ain on net !roit D1*****O ($<+$1) G *(C million Ro"bles
Reconciliation;
&ash balance GD)***** O $< G<(= million Ro"bles
:et 4roit Aan"ar# G)(C million
:et 4roit Febr"ar# G$(1 million
/0chan.e loss Aan"ar# G+*(= million
/0chan.e .ain on cash G1(> million
/0chan.e .ain Febr"ar# G*(C million
Total G<(= million Ro"bles
/0chan.e dierences arisin. rom chan.es to e1"it#( s"ch as ca!ital
increases or dividends( sho"ld also be transerred to e1"it#-
Minority $nterests ."on-controlling interests/
Oten an "ndertakin. owns 1**? o a s"bsidiar# o!eration- When it
does not( the shares that it does not own( and are not owned b#
other members o the "ndertakin.@s .ro"!( are reerred to as
9inorit# Interests-
9inorit# interests are third+!art# !artners in a s"bsidiar#-
Where there are minorit# interests relatin. to orei.n "ndertakin.s(
their share o e0chan.e .ains (and losses) sho"ld be added to the
9inorit# Interests (:on+controllin. interests) in the consolidated
balance sheet-
1>
For e0am!le( i minorit# interests own )*? o a orei.n "ndertakin.(
)*? o e0chan.e dierences relatin. to that "ndertakin. sho"ld be
transerred to 9inorit# Interests in each !eriod- %s this is onl# a book
entr#( no mone# is transerred as a res"lt-
Exa%ple;
:et assets (held as an investment) o an 8*? owned orei.n
s"bsidiar# are D1* million- :o tradin. takes !lace in the !eriod-
Aan"ar# 1
st
D1G$* Ro"bles-
Aan"ar# $1
st
D1G$> Ro"bles-
The e0chan.e .ain is;
D1* million O ($>+$*) G> million Ro"bles-
%s the !arent owns onl# 8*?( = million Ro"bles o .ain are recorded
as e1"it#( and the remainin. 1 million Ro"bles are added to minorit#
interests in the balance sheet-
Inter com!an# balances sho"ld be a.reed b# each !art# !rior to
inalisin. the inancial statements s"bmitted or consolidation-
/0chan.e dierences re1"entl# occ"r-
It is vital to record the orei.n c"rrenc# amo"nt( as well as the
Ro"ble amo"nt( o each transaction- /ach transaction will have its
own e0chan.e rate( and the total amo"nt in orei.n c"rrenc# will not
be eas# to calc"late witho"t this inormation-
/0chan.e dierences sho"ld be written o to the Income Statement(
"nless the balance orms !art o the !arent@s net investment in a
orei.n o!eration (s"ch as an inter com!an# loan)-
In s"ch a case( the e0chan.e dierence sho"ld be recorded in
e1"it#( "ntil the dis!osal o the net investment- 3!on dis!osal( it will
be recorded as a .ain( or loss( in the income statement-
In the e0am!le below( the e0chan.e rates are .iven or
Aan"ar# 1
st
( ass"min. no movement on the acco"nts d"rin. the
month-
Exa%pleC
Bo"r orei.n o!eration is inanced b# a D1 million inter com!an#
loan-
It also has an acco"nt receivable o 8**(*** /"ros rom another
.ro"! com!an#-
Aan"ar# 1
st
D1G$* Ro"bles 1/"roG$> Ro"bles
Aan"ar#$1
st
D1G)) Ro"bles- 1/"roG)8 Ro"bles
The D e0chan.e .ain G D1million O ($*+))) G 8 million Ro"bles
(It is a .ain as ewer Ro"bles are owed-)
The /"ro loss G 8**-*** /"ros O ($>+)8) G >(C million Ro"bles-
(It is a loss as ewer Ro"bles will be received-)
The D .ain will .o to e1"it#( as it is !art o the net investment
inancin. the "ndertakin.-
1C
The /"ro loss will be recorded in the income statement( as it is a
tradin. item-
Where !ossible( all s"bsidiar# #ear+ends m"st be at the same time
as that o the !arent "ndertakin.-
3nder IFRS 1*( the ma0im"m !ermitted dierence is $ months-
Where there is a dierence( the assets and liabilities o the orei.n
o!eration are translated at its balance sheet date-
%d'"stment sho"ld be made or an# si.niicant dierences created
b# an# orei.n o!eration havin. a dierent acco"ntin. date (see
%nne0 or e0am!les)-
Exa%pleC -ains or losses fro% translation of a foreign
subsidiaryGs financial state%ents
Issue
9ana.ement sho"ld classi# e0chan.e dierences arisin. on the
translation o a orei.n "ndertakin.@s inancial statements as e1"it#(
"ntil the dis!osal o the net investment-
2ow sho"ld mana.ement reco.nise translation losses in res!ect o
a orei.n s"bsidiar#@s inancial statements where those losses res"lt
rom a severe deval"ation o the s"bsidiar#@s meas"rement
c"rrenc#L
.ackground
% is a French !arent "ndertakin. with a s"bsidiar#( B( in %rica-
7"rin. the #ear the %rican co"ntr#@s c"rrenc# s"ered a severe
deval"ation and "ndertakin. % inc"rred material losses on the
translation o B@s inancial statements-
Solution
9ana.ement sho"ld reco.nise the loss on the translation o B@s
inancial statements in e1"it#- The severit# o the deval"ation does
not aect the treatment-
The e0chan.e dierences are not reco.nised as income or e0!ense
or the !eriod beca"se the chan.es in e0chan.e rates have little( or
no( direct eect on the !resent and "t"re cash lows rom o!erations
o either the s"bsidiar# or the !arent-
Exa%pleC Exchange gains and losses seg%ents
3ndertakin. 7 has o!erations in o"r b"siness se.ments- The
orei.n e0chan.e .ains and losses arisin. rom the reval"ation o
orei.n c"rrenc# receivable balances are recorded within
administrative e0!enses and thereore within o!eratin. !roit-
7 !resents se.ment inormation in accordance with IFRS 8(
O!eratin. Se.ments( incl"din. se.ment res"lt-
Sho"ld se.ment res"lt incl"de the orei.n e0chan.e .ains and
losses arisin. rom the reval"ation o orei.n c"rrenc# receivables
rom that se.mentL
Bes- The orei.n e0chan.e .ains and losses arise directl# rom the
reval"ation o the orei.n c"rrenc# receivables rom each se.ment
and sho"ld be incl"ded in se.ment res"lt which is the dierence
between se.ment reven"e and e0!ense-
Se.ment e0!ense is the directl# attrib"table costs o each se.ment-
The orei.n e0chan.e .ains and losses are directl# attrib"table to
the se.ments rom which the# arise-
1<
9* 2isposal of a $oreign 8peration
On dis!osal o a orei.n "ndertakin.( all e0chan.e dierences
deerred into e1"it# cr#stallise and sho"ld be added to the .ain( or
loss( on dis!osal in the Income Statement-
Exa%ple;
% orei.n s"bsidiar# was sold or D>**(***-
Its share ca!ital was D<>(***( its retained earnin.s D$>*(*** and
e0chan.e losses in e1"it# were D8*(***-
(:ote; the total o these $ i."res will e1"al the net assets( ass"min.
there is no other com!onent o e1"it#-)
The .ain on dis!osal; D>**(*** Q (D<>(***RD$>*(***+D8*(***) G
D1>>(***-
The .ain will be translated into "nctional c"rrenc# at the s!ot rate
on the transaction da#-
In the case o a !artial dis!osal( onl# the !ro!ortionate share o the
net c"m"lative e0chan.e dierence sho"ld be incl"ded in the
Income Statement-
Exa%ple;
)*? o a orei.n s"bsidiar# was sold or D)>*(***-
Its share ca!ital was D1**(***( its retained earnin.s D1(>**(*** and
e0chan.e .ains in e1"it# were D>*(***-
The .ain on dis!osal; D)>*(*** Q )*?(D1**(***R
D1(>**(***R>*(***) G DC*(***
The .ain will be translated into "nctional c"rrenc# at the s!ot rate
on the transaction da# and incl"ded in the Income Statement
2isposal or partial disposal of a foreign operation
In addition to the dis!osal o an "ndertakin.@s entire interest in a
orei.n o!eration( the ollowin. are acco"nted or as dis!osals e)en
if the undertaking retains an interest in the ormer s"bsidiar#(
associate or 'ointl# controlled "ndertakin.;
(i) the loss o control o a s"bsidiar# that incl"des a orei.n
o!erationN
(ii) the loss o si.niicant inl"ence over an associate that incl"des a
orei.n o!erationN and
(iii) the loss o 'oint control over a 'ointl#+controlled "ndertakin. that
incl"des a orei.n o!eration-
On dis!osal o a s"bsidiar# that incl"des a orei.n o!eration( the
c"m"lative amo"nt o the e0chan.e dierences relatin. to that
orei.n o!eration that have been attrib"ted to the non+controllin.
interests (minorit# interests) shall be dereco.nised( b"t shall not be
reclassiied to !roit or loss-
18
8n the partial disposal of a subsidiary that includes a foreign
operation& the undertaking shall re'attribute the proportionate
share of the cu%ulati)e a%ount of the exchange differences
recognised in other co%prehensi)e inco%e to the non'
controlling interests in that foreign operation*
As the undertakingGs share decreases& the share of the non'
controlling >%inority? interests increases& so an extra share of
exchange differences is allocated to the%*
In any other partial disposal of a foreign operation >not a
subsidiary?& the undertaking shall reclassify to profit or loss
only the proportionate share of the cu%ulati)e a%ount of the
exchange differences recognised in other co%prehensi)e
inco%e*
% !artial dis!osal o an "ndertakin.@s interest in a orei.n o!eration is
an# red"ction in an "ndertakin.@s ownershi! interest in a orei.n
o!eration( e0ce!t those red"ctions that are acco"nted or as
dis!osals-
%n "ndertakin. ma# dis!ose( or !artiall# dis!ose( o its interest in a
orei.n o!eration thro".h sale( li1"idation( re!a#ment o share
ca!ital or abandonment o all( or !art o( that "ndertakin.-
The !a#ment o a dividend is !art o a dis!osal onl# when it
constit"tes a ret"rn o the investment( or e0am!le when the
dividend is !aid o"t o !re+ac1"isition !roits-
In the case o a !artial dis!osal( onl# the !ro!ortionate share o the
related acc"m"lated e0chan.e dierence is incl"ded in the .ain or
loss-
% write+down o the carr#in. amo"nt o a orei.n o!eration( either
beca"se o its own losses or beca"se o an im!airment reco.nised
b# the investor( does not constit"te a !artial dis!osal-
%ccordin.l#( no !art o the deerred orei.n e0chan.e .ain or loss is
reco.nised in other com!rehensive income is reclassiied to !roit or
loss at the time o a write+down-
0yperin+lation 'conomies and 0edge Accounting
I%S ), covers the acco"ntin. treatment o orei.n "ndertakin.s
located in h#!erinlation economies- I%S $, covers hed.e
acco"ntin.( incl"din. the hed.in. o orei.n c"rrencies- The# are
be#ond the sco!e o this workbook( b"t are covered in the I%S ),
and I%S $, workbooks-
:* 2isclosure Re;uire%ents
%n "ndertakin.@s inancial statements sho"ld disclose;
the total net e0chan.e dierences incl"ded in the net !roit or
the !eriod-
net e0chan.e dierences classiied as e1"it# as a se!arate
com!onent o e1"it#( and its o!enin. and closin. balances -
Where the !resentation c"rrenc# diers rom the "nctional c"rrenc#
o the irm( the reason or this sho"ld be disclosed-
%n# chan.e in !resentation c"rrenc#( or "nctional c"rrenc#( sho"ld
be disclosed-
1,
The method selected to translate .oodwill and air val"e ad'"stments
arisin. on ac1"isition sho"ld be disclosed-
9aterial im!acts o chan.es in orei.n c"rrenc# rates( ater the
balance sheet date( sho"ld be detailed( i inancial statement "sers
wo"ld otherwise be misled in makin. their eval"ations and
decisions-
7isclos"re o an "ndertakin.@s orei.n c"rrenc# risk mana.ement
!olic# is enco"ra.ed-
10* Annex < Exa%ples '$oreign operations with non'
coter%inous year ends
3ndertakin. F !re!ares its ann"al inancial statements at $*
Se!tember- 2owever( local re."lations re1"ire one o its
s"bsidiaries( "ndertakin. 6( to !re!are its inancial statements at $1
%"."st-
3ndertakin. F "ses 6@s res"lts or the 1) months to $1 %"."st or
consolidation !"r!oses( rather than have a second set o res"lts
a"dited to $* Se!tember-
The e0chan.e rate between the !o"nd ("sed or .ro"! re!ortin.)
and "ndertakin. 6@s local c"rrenc# was S1;
H&1>( *** at $1 %"."st )**C and S1; H&18(*** at $* Se!tember
)**C- There were no si.niicant transactions or other events at 6
d"rin. Se!tember )**C-
3ndertakin. 6@s net assets at $1 %"."st )**C were H&)$=m-
What e0chan.e rate sho"ld mana.ement "se to translate the res"lts
o "ndertakin. 6L
Where a orei.n o!eration has a dierent re!ortin. date than the
re!ortin. "ndertakin.( IFRS 1*( allows the "se o a dierent
re!ortin. date !rovided that the dierence is no more than three
months-
%lso( ad'"stments m"st be made or the eects o an# si.niicant
transactions( or other events that occ"r between the dierent dates-
The assets and liabilities o the orei.n o!eration sho"ld be
translated at the e0chan.e rate at the balance sheet date o the
orei.n o!eration( b"t ad'"stments sho"ld be made or si.niicant
chan.es in e0chan.e rates "! to the balance sheet date o the
re!ortin. "ndertakin.-
Translatin. "ndertakin. 6@s balance sheet as at $1 %"."st "sin. the
$1 %"."st )**C e0chan.e rate res"lts in net assets o "ndertakin. 6
o S1>(C**- 2owever( translatin. the balance sheet "sin. the $*
Se!tember )**C e0chan.e rate res"lts in the consolidation o a
balance sheet with net assets o S1$(C**-
%s the chan.e in e0chan.e rates between $1 %"."st )**C and $*
Se!tember )**C is si.niicant( "ndertakin. F sho"ld "se the
e0chan.e rate o $* Se!tember )**C or consolidation !"r!oses-
,oint )enture with a noncoter%inous year'end
)*
Investor F has an overseas 'oint vent"re (AT)- F !re!ares inancial
statements to the #ear endin. $* %!ril and the AT !re!ares inancial
statements to the #ear endin. $1 7ecember-
&an investor F "se the AT-s 7ecember inancial statements in
!re!arin. its own inancial statements in %!rilL
I%S )8 re1"ires the "se o inancial statements drawn "! to the
same date as the investor "nless it is im!ractical to do so-
In !artic"lar I%S )8 !rohibits a dierence o more than three months
between the #ear+end o the investor and o the associate-
Thereore( investor F sho"ld re1"est the AT to !re!are s!ecial+
!"r!ose inancial statements drawn "! to the #ear endin. $* %!ril-
11* #ultiple "hoice (uestions
12 Monetary assets are3
1) &ash onl#-
)) &ash and Bank balances-
$) 9one# held( assets receivable( and liabilities !a#able( in cash
or cash e1"ivalents-
42 A Foreign !peration is3
1) % orei.n re!resentative where the activities are not an
inte.ral !art o the !arent-
)) % orei.n o!eration is a branch( associate( 'oint vent"re or
s"bsidiar#( where the activities are cond"cted in a dierent
co"ntr# to that o the !arent "ndertakin.-
$) :either o the above-
52 #he +unctional currency is3
1) The c"rrenc# o the !rimar# economic environment in which
the "ndertakin. o!erates-
)) The national c"rrenc# o the co"ntr# where an "ndertakin. is
based-
62 #he Presentation Currency is3
1) 3sed in the !arent@s and in the consolidated inancial
statements-
)) The local c"rrenc# o a orei.n o!eration in which it re!orts-
)1
$) The c"rrenc# with the lar.est e0chan.e .ains-
72 ')change *i++erence is3
1) The dierence between two dierent c"rrencies-
)) The dierence calc"lated rom re!ortin. the same n"mber o
"nits o a orei.n c"rrenc#( in the !resentation c"rrenc#( at
dierent e0chan.e rates-
$) The avera.e dierence between the e0chan.e rate at the
be.innin. and end o a !eriod-
82 #he Closing &ate is3
1) The avera.e rate "sed in the #ear a irm closes down-
)) The s!ot e0chan.e rate at the balance sheet date-
$) The e0chan.e rate at which all assets and liabilities are
stated-
92 #he net investment in a +oreign operation is3
1) The !arent@s share o the net assets o the "ndertakin.-
)) The minorit# interest@s share o the net assets o the
"ndertakin.-
$) The amo"nt invested in the "ndertakin. stated at cost-
:2 #ransactions and investments in +oreign currencies3
1) 7ecrease b"siness risk-
)) Increase b"siness risk-
;2 #echni<ues such as hedging, +or=ard contracts and options
can3
1) Red"ce risk-
)) Increase risk-
$) %re !"rel# or s!ec"lation-
1>2 #he +oreign operation may trade pro+itably, but the
investment may be adversely hit by3
1) Rise in the orei.n c"rrenc# a.ainst that o the !arent-
)) Fall in the orei.n c"rrenc# a.ainst that o the !arent-
$) /0chan.e rates remainin. the same-
112 !pportunities +or per+ormance improvement =ill more likely
come +rom3
1? A re)iew of the realised gains and losses*
2? A re)iew of the unrealised gains and losses*
142 #he e)change rate on the day o+ the transaction is called3
1) The Fs!ot@ rate-
)) The closin. rate-
$) The avera.e rate-
=) % rate sometime in the "t"re-
152 #he date o+ the transaction is3
1) The date cash is transerred-
)) The date when the transaction is contracted( or reco.nised-
))
$) When the transaction is entered into the books o acco"nt-
162 $+ the ? strengthens3
1) Hess Ro"bles wo"ld be received rom an acco"nt receivable
in D-
)) 9ore Ro"bles wo"ld be received rom an acco"nt receivable
in D-
$) Hess Ro"bles wo"ld be !aid to settle an acco"nt !a#able in D-
172 $+ the ? +alls in value against the &ouble, and you have net ?
liabilities3
1) %n e0chan.e loss will res"lt-
)) %n e0chan.e .ain will res"lt-
$) :either .ain nor loss will res"lt-
182 $+ the ? rises in value against the &ouble, and you have net
? assets3
192 $+ the ? +alls in value against the &ouble, and you have net ?
assets3
1:2 $+ the ? rises in value against the &ouble, and you have net
? liabilities3
1;2 Monetary items =ill be reported3
1) %t the closin. rate on the balance sheet date-
)) %t the e0chan.e rate o the transaction-
$) %t the avera.e rate or the #ear-
4>2 "on-monetary items should be reported3
1) %t the closin. rate-
)) %t the e0chan.e rate o the transaction-
$) %t the avera.e rate or the #ear-
412 ')change di++erences on monetary items should be3
1) Recorded in e1"it#( "ntil the dis!osal o the net investment-
)) Reco.ni5ed in the !eriod@s income statement-
$) I.nored-
442 @here a monetary item +orms part o+ the parentAs net
investment in a +oreign operation, the e)change di++erence
should be3
1) Recorded in e1"it#( "ntil the dis!osal o the net investment-
)) Reco.ni5ed in the !eriod@s income statement-
$) I.nored-
)$
452 For a *ependent Foreign !peration, each transaction is
entered at3
1) The e0chan.e rate that wo"ld have been "sed in the !arent@s
books Q the !arent@s "nctional c"rrenc#-
)) &losin. rate-
$) %vera.e rate-
462 For +oreign operations, closing rate should be used +or3
1) Income and e0!enses-
)) %ssets and liabilities-
$) /ach transaction-
472 For +oreign operations, the rate o+ the day o+ transactions
should be used +or3
1) Income and e0!enses-
)) %ssets and liabilities-
$) /ach transaction-
482 #he opening net investment o+ the period needs to be
restated at the3
1) &losin. e0chan.e rate-
)) %vera.e e0chan.e rate-
$) 4revio"s #ear@s o!enin. rate-
=) 4revio"s #ear@s closin. rate-
492 ')change di++erences arising +rom changes to e<uity, such
as capital increases or dividends, should3
1) Be reco.ni5ed in the !eriod@s income statement-
)) Be transerred to e1"it#-
$) I.nored-
4:2 @here there are minority interests relating to +oreign
undertakings, their share o+ e)change gains .and losses/
should be3
1) I.nored-
)) Incl"ded with the !arent@s share o e0chan.e .ains-
$) %dded to the minorit# interests in the consolidated balance
sheet-
4;2 $nter-company balances should be3
1) I.nored-
)) %.reed b# each !art#-
$) Transerred to the 2oldin. &om!an#-
5>2 ')change di++erences on most inter-company trading
transactions should be3
1) I.nored-
)) Written o to the income statement-
$) Recorded in e1"it#-
512 !n disposal o+ a +oreign operations, all e)change should be3
1) I.nored-
)) %dded to the .ain( or loss( on dis!osal in the income
statement-
)=
$) Recorded in e1"it#-
542 $n the case o+ a partial disposal, ho= much e)change
di++erence should be included in the $ncome Statement,
1) %ll-
)) :one-
$) 4ro!ortionate share-
12* Exercise (uestions
12 Based on the +ollo=ing in+ormation please complete the
+ollo=ing table2
Bo" 1"ote a !rice o D)*** or an item- Based on toda#@s e0chan.e
rate( #o" will make a !roit o $*?- 2owever( the Ro"ble stren.thens
a.ainst the D b# 1>? !er month( eliminatin. #o"r !roit beore #o"
receive the cash in month >;
Mont
h Action ?
')change
&ate
&oubles
&evenue
&oubles
Cost
&oubles
Pro+it
C%oss
1 Duote 4>>> 5>,>>
4 &eceive !rder 4>>>
5 Production 4>>>
6 *elivery 4>>>
7 Payment 4>>>
42 Based on the +ollo=ing in+ormation =hat =ould be your
entries in the &ussian books o+ account2
On 1
st
Aan"ar#( #o" sell D1** o services to a orei.n c"stomer on
credit- The e0chan.e rate is D1G$* Ro"bles-
7ebit %cco"nts Receivable $***
&redit Sales $***
The cash is received in D on Febr"ar# 1
st
- The e0chan.e rate has
weakened to D1 G =* Ro"bles-
*ebit EE22
*ebit EE22
Credit EE22
Credit EE22
52 Complete the +ollo=ing table2
I #o" kee! #o"r books in Ro"bles( b"t trade is denominated in D(
movements in the D a.ainst the Ro"ble will have the ollowin.
res"lts rom #o"r D denominated assets and liabilities;
? Falls ? &ises
? Assets
? %iabilities
)>
62 Based on the +ollo=ing in+ormation =hat =ould be the
balances appearing in the &ussian books o+ account2
/1"i!ment was bo".ht rom abroad on Aan 1
st
( b"t had not been
!aid or b# 9arch $1
st
( when the !eriod ended-
The e0chan.e rates were; Aan"ar# 1
st
D1G$* Ro"bles-
9arch $1
st
D1G)* Ro"bles-
The cost o the machine was D1*(***( and de!reciation or the
!eriod was 1*? o cost-
In the R"ssian books o acco"nt( the ollowin. balances wo"ld
a!!ear;
'<uipment cost EE22
*epreciation EE22
"et book value EE22
Accounts payable EE22
')change gain EE22 .relating to
accounts payable/
72 Based on the +ollo=ing in+ormation the inter-company loan
should be considered as part o+ =hat,
Bo" set "! a s"bsidiar# abroad- It has net assets o D1* million
str"ct"red with D1*** o share ca!ital and D,,,,*** o inter+
com!an# loan-
82 Using the +ollo=ing in+ormation +ind3
Translations to Ro"bles( cash balance( net !roit and the e0chan.e
.ainUloss-
st
The inventor# is sold or D1-) million in vario"s transactions d"rin.
the month-
D1 million is !aid to settle the acco"nts !a#able( leavin. D)***** in
cash on $1
st
Aan"ar#-
st
Aan"ar# $1
st
D1G$C Ro"bles-
%vera.e rateD1G$$ Ro"bles
&ash balance G
:et !roit G
/0chan.e .ainUloss G
92 Given the +ollo=ing in+ormation complete the tables +or the
months o+ January and February2 Also, complete the
reconciliation table2
)C
st
!rovided b# third !arties- The inventor# is sold or D1-) million in
vario"s transactions d"rin. the month-
D1 million is !aid to settle the acco"nts !a#able( leavin. D)***** in
cash on $1
st
Aan"ar#-
This tradin. !attern is re!eated in Febr"ar#-
st

D1G$* Ro"bles
Aan"ar# $1
st
D1G=* Ro"bles-
%vera.e rate D1G$> Ro"bles
Febr"ar# 1
st
D1G$= Ro"bles
Febr"ar# )8
th
D1G)* Ro"bles
%vera.e rate D1G)< Ro"bles
,anuary
Cash balanceF
"et pro+it F
')change pro+it F .classi+ied as e<uity/
$ebruary
Restate o!enin. cash balance P closin. rate-
Cash balance F
"et pro+it F
')change loss on net pro+it F
Reconciliation;
Cash balance F
"et Pro+it January F
"et Pro+it February F
')change gain January F
')change loss on cash F
')change loss February F
#otal F
:2 Fill in the missing +igures2
:et assets o an <>? owned orei.n s"bsidiar# are D1** million
(held as an investment)- :o tradin. takes !lace in the !eriod-
Aan"ar# 1st D1G $* Ro"bles
Aan"ar# $1st D1G )) Ro"bles-
#he e)change loss is3 EE22 million &oubles2
)<
As the parent o=ns onlyEE22G, EEEEE22million &oubles o+
gain are recorded as e<uity, and the remaining EE22million
&oubles are added to EE22
;2 Find the 'uro and the *ollar e)change gainCloss2
Bo"r orei.n o!erations inanced b# a ) million /"ro inter com!an#
loan- It also has an acco"nt receivable o D=**(*** rom another
.ro"! com!an#-
Aan"ar# 1
st
D1G$* Ro"bles 1/"ro G $> Ro"bles
Aan"ar# $1
st
D1G)8 Ro"bles 1/"ro G )) Ro"bles
#he 'uro e)change gainCloss F EE22million &oubles2
#he ? gainCloss FEE22million &oubles2
1>2Find the gainCloss on disposal
% orei.n s"bsidiar# was sold or @750000-
Its share ca!ital was @60000( its retained earnin.s @500000 and
e0chan.e !roits in e1"it# were @200000-
#he gain C loss on disposal3 ?EE22
112 Find the gainCloss on disposal2
$*? o a orei.n s"bsidiar# was sold or DC*****-
Its share ca!ital was D1*****( its retained earnin.s D1,***** and
e0chan.e losses in e1"it# were D)C****-
#he gain C loss on disposal is EE22
13* Solutions
Answers to #ultiple "hoice (uestionsC
1- $) 11- )) )1- )) $1- ))
)- )) 1)- 1) ))- 1) $)- $)
$- 1) 1$- )) )$- 1)
=- 1) 1=- )) )=- ))
>- )) 1>- )) )>- 1)
C- )) 1C- )) )C- 1)
<- 1) 1<- 1) )<- ))
8- )) 18 1) )8- $)
,- 1) 1,- 1) ),- ))
1*- )) )*- )) $*- ))
Answers to Exercise (uestionsC
12
#onth Action @ Exchang Roubles Rouble Roubles
)8
e
Rate Re)enue
s
"ost
!rofit
ABoss
1 E"ote )*** $*(** C* *** =) *** 18 ***
) Receive Order )*** )>(>* >1 *** =) *** , ***
$ 4rod"ction )*** )1(C8 =$ $C* =) *** 1 $C*
= 7eliver# )*** 18(=) $C 8=* =) *** '5 160
> 4a#ment )*** 1>(CC $1 $)* =) *** '10 690
42 $n the &ussian books o+ account, you3
7ebit &ash =***
&redit /0chan.e 6ain 1***
&redit %cco"nts Receivable $***
52Gains C %osses are3
@ $alls @ Rises
D %ssets Hoss 6ain
D Hiabilities 6ain Hoss
62 $n the &ussian books o+ account, the +ollo=ing balances
=ould appear3
/1"i!ment cost $*****
7e!reciation $****
:et book val"e )<****
%cco"nts !a#able )*****
/0chan.e .ain relatin. to acco"nts !a#able1*****
72#he net investment in the subsidiary2
82#ranslation to &oubles are3
&ash balance GD)***** O $C G <() million Ro"bles (!eriod+end
rate)
:et !roit G D)***** O $$ G C(C million Ro"bles (avera.e rate)
/0chan.e .ain G *(C million Ro"bles(dierence) (classiied as
e1"it#)
92
,anuary
&ash balance GD)***** O =* G 8(* million Ro"bles (!eriod+end
rate)
:et !roit G D)***** O $> G <(* million Ro"bles (avera.e rate)
/0chan.e !roit G 1(* million Ro"bles(dierence) (classiied as
e1"it#)
$ebruary
Restate o!enin. cash balance P closin. rate-
D)***** O ()*+=*) G =(* million Ro"bles G e0chan.e loss(classiied
as e1"it#)
&ash balance GD=***** O )* G8(*million Ro"bles (!eriod+end
rate)
:et !roit G D)***** O )< G>(=million Ro"bles (avera.e rate)
/0chan.e loss on net !roit D)*****O ()*+)<)G 1(= million Ro"bles
Reconciliation;
),
&ash balance GD=***** O )* G8(* million Ro"bles
:et 4roit Aan"ar# G<(* million
:et 4roit Febr"ar# G>(= million
/0chan.e .ain Aan"ar# G1(* million
/0chan.e loss on cash G+=(* million
/0chan.e loss Febr"ar# G+1(= million
Total G 8(* million Ro"bles
:2 #he e)change loss is3
D1** million O ())+$*) G 8 million Ro"bles-
%s the !arent owns onl# <>?( C million Ro"bles o .ain are recorded
as e1"it#( and the remainin. ) million Ro"bles are added to minorit#
interests in the balance sheet-
;2 #he 'uro e)change gain
) million /"ro O ($>+))) G )C million Ro"bles-
(It is a .ain as ewer Ro"bles are owed-)
The D loss G
D=***** O ($*+)8) G *(8 million Ro"bles-
(It is a loss as ewer Ro"bles will be received-)
The /"ro .ain will .o to e1"it#( as it is !art o the net investment
inancin. the "ndertakin.- The D loss will be recorded in the income
statement( as it is a tradin. item-
1>2 #he gain C loss on disposal3
D<>**** Q (DC****RD>*****RD)****) G D1**** loss-
112 #he gain on disposal3
DC***** Q $*?(D1*****RD1,*****+)C****) G D<8*** .ain-
14* I$RS $ra%ework
%ll international standards a!!l# in "ll to consolidated acco"nts
(e0ce!t where otherwise stated)- The ollowin. are the more
im!ortant;
$ASB Conceptual Frame=ork
(&once!ts that "nderlie the !re!aration and !resentation o
inancial statements or e0ternal "sers-)
I%S 1 4resentation o Financial Statements
I%S < Statements o &ash Flows
I%S )1 The /ects o &han.es in /0chan.e Rates
(es!eciall# Financial Statements o Forei.n O!erations)
I%S )8 %cco"ntin. or Investments in %ssociates
I%S $C Im!airment o %ssets
$*
IFRS 1 First+time %do!tion o IFRS
IFRS $ B"siness &ombinations
IFRS > F7is!osal o :on+&"rrent %ssets and 4resentation o
7iscontin"ed O!erations@
IFRS , Financial Instr"ments
IFRS 1* &onsolidated Financial Statements
IFRS 11 Aoint %rran.ements
$1

Ias 21 Afa

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IAS 21 The effects of changes in foreign exchange rates

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