Summarize International Accounting Standard 21, the effects of changes in foreign exchange rates; and International Accounting Standard...

60.1K

Verified Solution

Question

Accounting

Summarize International Accounting Standard 21, the effects ofchanges in foreign exchange rates; and International AccountingStandard 39, Financial Instruments, recognition andmeasurement.

Answer & Explanation Solved by verified expert

4.1 Ratings (887 Votes)

IAS 21 IAS 21 The Effects of Changes in Foreign Exchange Rates outlines how to account for foreign currency transactions and operations in financial statements and also how to translate financial statements into a presentation currency An entity is required to determine a functional currency for each of its operations if necessary based on the primary economic environment in which it operates and generally records foreign currency transactions using the spot conversion rate to that functional currency on the date of the transaction Objective The objective of IAS 21 is to prescribe how to include foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a presentation currency The principal issues are which exchange rates to use and how to report the effects of changes in exchange rates in the financial statements Foreign currency transactions A foreign currency transaction should be recorded initially at the rate of exchange at the date of the transaction use of averages is permitted if they are a reasonable approximation of actual At each subsequent balance sheet date foreign currency monetary amounts should be reported using the closing rate nonmonetary items carried at historical cost should be reported using the exchange rate at the date of the transaction nonmonetary items carried at fair value should be reported at the rate that existed when the fair values were determined Exchange differences arising when monetary items are settled or when monetary items are translated at rates different from those at which they were translated when initially recognised or in previous financial statements are reported in profit or loss in the period with one exceptionThe exception is that exchange differences arising on monetary items that form part of the reporting entitys net investment in a foreign operation are recognised in the consolidated financial statements that include the foreign operation in other comprehensive income they will be recognised in profit or loss on disposal of the net See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member