Summary FinAcc 278 Term 4 notes

Term 4

, Table of Contents
IAS 21 ....................................................................................................................3
CLASS EXAMPLES: STELLENBOSCH UNIVERSITY ................................................................ 12
Questions ......................................................................................................................... 21
IAS 21: Foreign Operations .................................................................................29
QUESTIONS: Stellenbosch Univeristy ................................................................................ 38
Foreign Operations: Formulas........................................................................................... 54
IFRS 13: Fair Value Measurement .......................................................................57
IAS 40: Investment Property ...............................................................................71

,IAS 21
The effects of changes in foreign exchange rates


2 PARTS:
1) transactions in a foreign currency
2) foreign operations – linked to group statements


EXCLUDE THESE PARAGRAPHS:
• Par 14 – hyper inflation
• Par 27 – hedge accounting
• Par 35 – 37 – change in FC (done in Hons)
• Par 42 – 43 – hyper inflation
• Par 48 – 49 – sale of FO (done in Hons)
• Par 50 – Tax effect (done in FA 379)
• Par 54 – disclosure in Hons



o QUESTIONS TO ASK:

- How do we account for the purchase transaction denominated in USD in our records (ZAR)?
- How will the accounting differ when purchase on credit?

è Each entity determines its Functional currency (FC), translate and account foreign currency items in FC of
the entity


o DEFINITIONS:

every entity determines its FC (functional currency), the entity then translates and accounts in this foreign currency

• Functional currency (FC): (paragraph 8)
Currency of primary economic environment in which the entity operates

• Foreign currency: (paragraph 8)
A currency other than the functional currency of the entity


• Functional Currency:

è Management first looks at paragraph 9 considerations, then paragraph 10

Consider (Paragraph 9):
- The currency which mainly influence sales prices (normally the denomination of the SP’s currency)
- The currency of the country whose competitive forces / laws are the main determinant in selling prices
- The currency that mainly influences the labour and material / overhead costs etc


Additional factors (Paragraph 10):
- currency in which any financing is generated
- currency in which operating activity receipts are most likely kept

When these factors are both present / mixed, management will utilize judgement to determine the
functional currency which will best represent the economic effects of the underlying transactions
events and conditions (par. 12)



PARAGRAPH 13:
The functional currency is determined to reflect the underlying transactions, events and conditions. Once it is
determined, it is not changed unless the underlying transactions, events and conditions change

, o Recording financial currency transactions in functional currencies


• Spot exchange rate (paragraph 8)
- The exchange rate at a specific time (for immediate delivery)

• Exchange rate (paragraph 8)
- Ratio of exchange for two currencies




• Initial recognition
(paragraph 21)

è Translate foreign currency to functional currency at the spot rate on the transaction date



Spot rate (paragraph 22) Transaction date (paragraph 22)
spot rate may be the average rate. If - Date on which transaction qualifies for
exchange rate fluctuates significantly recognition in accordance with IFRS
it is not appropriate




• Reporting at the end of subsequent reporting periods (paragraph 23)
At the end of each reporting period the following items must be translated: (par 23)