Page 10 - PowerPoint Presentation
P. 10
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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