Page 107 - Finac1 Test 2 slides

THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

Recording foreign transactions

• Foreign transaction are accounted using normal applicable

accounting principles

• Then apply applicable transaction rate – use the correct rate

• Initial Recognition:

• Transaction at a point in time - use spot exchange rate at date of
transaction

• Transaction over a period of time – translate using average
exchange rate over that period

• At Settlement date:

• Use spot exchange rate

• Difference between initial and settlement rates is the exchange
gain or loss

• Exchange gain or loss is immediately recognised in profit or loss

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