Page 10 - Finac 1 - Topic 2 - 1. The Effects of Changes In Foreign Exchange Rates

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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