ACCOUNTING

lOMoARcPSD|8949379




IAS 21 Notes


Financial accounting 300 (University of Pretoria)




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1. Introduction:
 2 ways an entity can participate in foreign activities:
o Txs in a foreign currency (import/export)
o Foreign operations (branch)
 Entity can choose to present FS in a foreign currency (e.g. for s/hs)
 IAS 21 doesn’t apply to:
o Hedge Accounting (IFRS 9)
o Presentation in SCF



2. Definitions:
Foreign Currency

Currency other than functional currency of entity.

Functional Currency

Currency determined by primary economic environment.

Primary Economic Environment

Economic environment in which entity primarily generates & spends its cash.

Factors to determine functional currency:

 Currency that influences SPs
 Currency of country (whose competitive forces + regulations mainly det. SPs)
 Currency mainly influences labour, material & other costs of g+s
 Currency in which funds from financing activities are generated
 Currency in which receipts from operating activities retained

Presentation Currency

Currency in which FS presented.




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