Page 274 - F1 Integrated Workbook STUDENT 2018
P. 274
Chapter 16
Translation of foreign currency
transactions
When a business enters into a transaction denominated in a currency other than its
functional currency, that transaction must be translated into the functional currency
before it is recorded.
Initial measurement
The transaction will initially be recorded by applying the spot
exchange rate i.e. the exchange rate at the date of the transaction.
Subsequent measurement – settled transactions
When cash settlement occurs the settled amount should be
translated using the spot rate on the settlement date. If this amount
differs from the amount initially recorded there will be an exchange
difference which is taken to the Statement of Profit or Loss
Subsequent measurement – unsettled transactions
The treatment of any foreign currency assets or liabilities in the
statement of financial position at the year-end will depend on whether
or not they are classed as monetary or non-monetary. Monetary
items are retranslated using the closing rate. Non-monetary items
are not re-translated.
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