AASI

• Functional Currency


  The currency of the primary economic environment in which the entity operates. Usually, this is also synonymous to the local currency of the country.
• Functional Currency


  • Currency that mainly influences the sales price for goods and services
  • Currency of the country whose competitive forces and regulations determine the sales price for goods and services
  • Currency that mainly influences the labor, material, and other costs of goods and services
• Presentation Currency


  The currency in which the financial statements are presented and is equal to the functional currency of a stand-alone entity
• Direct Quotation

  Exchange rate quoted in terms of how many units of the local currency can be converted into one unit of foreign currency
• Foreign Currency


  Presentation Currency
• Foreign Currency Translation


  Does not involve the act of exchanging one currency for another currency. Translation is required at the end of the accounting period when a company still holds assets or liabilities in its balance sheet which were obtained or incurred in a foreign currency.
• TWO APPROACHES OF TRANSLATION - PAS 21


  • Current Rate Method
  • Temporal Method
• Current Rate Method


  • Also called Closing Rate method, Net Investment Method or Translated Method
  • A type of translation from functional currency into the presentation currency
  • Applicable to a stand-alone entity that records its books in its functional currency and presents its financial statements in another currency
  • Applicable to a foreign operation such as foreign subsidiary, branch, joint venture or associate that records its books in its functional currency and translates its financial statements into the parent's reporting currency for the purpose of consolidation
• General Rules for Current Rate Method

  • Foreign operations operate independently in economic and financial matters and is not integral to the operations of the parent
  • Functional currency should be the local currency
  • The functional currency is not the currency of a hyperinflationary economy
• Translation Rules for Current Rate Method

  • Assets - Monetary and Nonmonetary: Closing Rate
  • Liabilities - Monetary and Nonmonetary: Closing Rate
  • Income and Expenses: General Rule - Historical Rate, Exception - Average rate if transactions occur evenly throughout the period
  • Shareholders Equity except Retained Earnings: Historical Rate
  • Retained Earnings: Previous Year Balance - Average Rate, Profit - Historical Rate, Dividends - Historical Rate, Ending Balance - Computed
  • Cumulative Translation Gain or Loss: Balancing Figure - Reported in Other Comprehensive Income
• Temporal Method


  • Also called Remeasurement Method
  • A type of translation from other currency into the functional currency
• Assumptions for Temporal Method

  • The parent and the foreign subsidiary's operation are treated as a single economic entity
  • The transactions of the foreign operation are believed to be the foreign currency transactions of the parent. Therefore, the foreign operation is an integral part of the parent
  • The economic effects of a change in exchange rates on the foreign operation relate to individual assets and liabilities that impact the parent's cash flows directly
  • The exchange gains and losses from remeasuring the operation's financial statements are taken to income statement and not to other comprehensive income
  • The objective of the remeasurement of a foreign operation is to achieve the same results as the case where the parent, as a stand-alone entity
• Translation Rules for Temporal Method

  • Monetary Assets and Liabilities: Closing Rate
  • Non-monetary Assets and Liabilities carried at Cost: Historical Rate
  • Non-monetary Assets and Liabilities carried at Fair Value: Closing Rate
  • Shareholders Equity except Retained Earnings: Historical Rate
  • Retained Earnings: Previous Year Balance - Average Rate, Profit - Historical Rate, Dividends - Historical Rate, Ending Balance - Computed
  • Income and Expenses Related to Nonmonetary Items at Cost: Historical Rate at Purchase Date
  • Income and Expenses Related to Nonmonetary Items at Fair Value: Historical Rate at Valuation Date
  • Income and Expenses Not Related to Nonmonetary Items: Average Rate
• Normally uses average rate for practical reasons
• Exchange gains and losses from remeasuring the operation's financial statements are taken to income statement and not to other comprehensive income
• The objective of the remeasurement of a foreign operation is to achieve the same results as the case where the parent, as a stand-alone entity
• The economic effects of a change in exchange rates on the foreign operation relate to individual assets and liabilities that impact the parent's cash flows directly
• The transactions of the foreign operation are believed to be the foreign currency transactions of the parent. Therefore, the foreign operation is an integral part of the parent
• The parent and the foreign subsidiary's operation are treated as a single economic entity
• The exchange gains and losses from remeasuring the operation's financial statements are taken to income statement and not to other comprehensive income
• Monetary Items


  • Cash and Cash Equivalents
  • Financial Asset at Amortized Cost
  • Accounts and Notes Receivable
  • Allowance for Doubtful Accounts
  • Advances to Employees
  • Prepaid Interest
  • Receivables under Finance Lease
  • Long Term Receivables
  • Recoverable Special Deposits
  • Pension, Sinking, and other fund consisting of bonds at amortized cost
  • Cash Surrender Value
  • Discount on Bonds Payable
  • Accounts and Notes Payable
  • Accrued Expenses
  • Cash Dividend Payable
  • Liability for Returnable Deposits
  • Accrued Losses on Firm's Purchase Commitments
  • Bonds Payable
  • Obligations under Finance Lease
  • Pension Benefits paid in cash
  • Provisions settled in cash
  • Loans and Receivables including allowances