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
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
