IAS 21 Summary (Financial Accounting)

IAS 21:
FOREIGN EXCHANGE TRANSACTIONS
IMPORTANT CONCEPTS
FUNCTIONAL CURRENCY
‣ Currency of primary economic environment in which the entity operates
FOREIGN CURRENCY
‣ Any currency other than the functional currency
MONETARY ITEMS PAR 16
‣ Units of currency held Bank & Cash
‣ Assets and liabilities to be received/paid Debtors, creditors, loans

NON-MONETARY ITEMS PAR 16
‣ This includes: prepaid amounts, goodwill, intangible assets, inventory, PPE, provisions
PRESENTATION CURRENCY
‣ Currency in which the financial statements are presented

DETERMINING THE FUNCTIONAL CURRENCY
PRIMARY FACTORS
‣ Currency you invoice in
‣ Currency of the country
‣ Currency the influence labour, materials & other costs of providing goods and services
SECONDARY FACTORS
‣ Where do you get financing?
‣ Where do you bank your excess money?

TRANSLATION RULES
MONETARY ITEMS
T RANSLATION E XCHANGE DIFFERENCE
1. Transaction date: At spot rate
2. Translation date: At year-end spot rate Exchange difference through P/L
3. Realisation date: At spot rate Exchange difference though P/L


NON-MONETARY ITEMS

MEASURED AT HISTORICAL COST

T RANSLATION E XCHANGE DIFFERENCE
1. Transaction date: At spot rate
2. Subsequently: At transaction date spot rate No exchange difference

MEASURED AT FAIR VALUE

T RANSLATION E XCHANGE DIFFERENCE
1. Transaction date: At spot rate
2. Translation date: At FV at year-end Exchange difference through OCI
3. Realisation date: At year-end FV Exchange difference through OCI

, CREATED BY LISKA CILLIERS




UNHEDGED TRANSACTIONS
EXAMPLES
INVESTMENT IN FOREIGN SHARES
Measured @ Fair value


D AY 1: $50 000 x R10 per $ = R500 000 Exchange difference + Fair value adjustment:
R22 500
Y EAR END : $55 000 x R9.50 per $ = R522 500

JOURNAL
Dr Investment in shares (SFP) 22 500
Cr Fair value adjustments (OCI) 22 500


PURCHASING INVENTORY IN FOREIGN CURRENCY
Measured @ historical cost
Inventory: Non-monetary asset
Creditor: Monetary asset Measured @ y/e spot rate


SCENARIO + JOURNALS
30 J UNE 2024 R ECOGNISE & MEASURE INVENTORY AND CREDITOR
Buy $100 000 inventory Dr Inventory (SFP) 500 000 @ spot rate $1:R5
Cr Creditor (SFP) 500 000


31 D ECEMBER 2024 R EMEASURE CREDITOR TO SPOT RATE
Year end Dr Exchange diff (P/L) 20 000 @ y/e spot rate $1:R5.20
Cr Creditors (SFP) 20 000


31 M ARCH 2025 R EMEASURE CREDITOR TO SPOT RATE
Pay $100 000 Dr Exchange diff (P/L) 110 000 @ spot rate $1:R5.30
Cr Creditor (SFP) 110 000

P AY & DERECOGNISE CREDITOR :
Dr Creditors (SFP) 2 500 Settled
Cr Bank (SFP) 2 500