Advance FA II, Chapter Six.pdf1111111111

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1. Chapter Six
The Effects of Changes in Foreign Exchange Rates
(IAS 21)
By: MengstD.

3. Learning Objectives
Atthecompletionofthischapter,youwouldbeableto:
oIdentifythefunctionalcurrenciesoforganizations
oIdentifyforeigntransactionfromforeignoperationandexplaintheaccountingtreatmentof
each
oExplainhowforeigntransactionsareinitiallyrecognized
oIdentifywhetheraforeigntransactionhasgainorlossonsettlementdate
oShowtheaccountingtreatmentofmonetaryandnonmonetaryitemswhicharedenominated
inforeigncurrency
oExplaintherulesusedinsubsequentmeasurementofbothmonetaryandnonmonetaryitems
oExplaintheproceduresusedintranslatingfromfunctionaltopresentationcurrency

4. Objective

5. Objective
Theprincipalissuesare:
•whichexchangerate(s)touseand
•howtoreporttheeffectsofchangesinexchangeratesinthefinancial
statements.

6. Definition of terms
Aforeigncurrencytransactionisasalesorpurchasetransactiondenominatedin
acurrencyotherthanthecompany’sfunctionalcurrency.
Inotherwords,aforeigncurrencytransactionisatransactionthatisdenominated
andrequiressettlementinaforeigncurrency.
•Thesetransactionsinclude:
importdealingswithforeignsuppliers
exportdealingswithforeigncustomers
borrowingandlendinginforeigncurrencies

7. Definition of terms
FunctionalCurrency
•Thecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates.
PresentationCurrency/ReportingCurrency
•Thecurrencyinwhichanentitypresentsitsfinancialstatements.
•Isacurrencyotherthanthefunctionalcurrencyoftheentity.
ExchangeDifference(Spread)
•Thisisthedifferenceresultingfromtranslatingonecurrencyintoanothercurrencyat
differentexchangerates.

8. Definition of terms
MonetaryandNonMonetaryItems
•Monetary items are assets/liabilities held to be received/paid in fixed or determinable amounts.
Examples include, cash and bank balances, trade receivables and payables, loan receivables
and payables, deferred tax, pensions and provisions. The feature of a non-monetary item is the
absence of a right to receive a fixed or determinable amount of money (this includes
prepayments, goodwill, intangible assets, inventory and property).
ClosingRate
•Thisisthespotexchangerateatthereportingdate.
SpotExchangeRate
•Theexchangerateforimmediatedelivery.

9. Definition of terms
ForwardRates:areratesappliedtoforeigncurrencytransactionstobeconsummatedata
futuredate.
ExchangeRate:theratioofexchangefortwocurrencies.
Foreignoperations:asubsidiary,associate,jointventure,orbranchwhoseactivitiesare
basedinacountryorcurrencyotherthanthatofthereportingentity.
ForeignCurrency–anycurrencyotherthanthereportingcurrencyoftheparentcompany
LocalCurrencyisthecurrencyunitusedinacountryreferenced.Localcurrencyisthe
currencyinthecountrywheretheforeignsubsidiaryisoperating.Forexample,Birristhe
localcurrencyinEthiopia.

10. Exchange Rates and Meaning of Translation
Inamodernsetupoftoday’sworld,allcountrieshaveeconomicrelationswith
othercountries.Thereisincreasinginterdependenceamongallcountries.
Aseachcountryhasitsowncurrency,domesticcurrencyofacountrycannotbe
useddirectlyinanyothercountry.Ithastobeconvertedintocurrencyoftheother
countryandthentobeusedintransactions.
Exchangerateistheratiobetweenaunitofonecurrencyandanothercurrencyfor
whichthatunitcanbeexchangedataparticulartime.
Anexchangerateistherateatwhichonecurrencycanbeexchangedforanother
betweennationsoreconomiczones.

11. Exchange Rates and Meaning of Translation

12. Exchange Rates and Meaning of Translation
Itisusedtodeterminethevalueofvariouscurrenciesinrelationtoeachother
andisimportantindeterminingtradeandcapitalflowdynamics.
Foreignexchange(ForexorFX)rateistherateatwhichcurrencyofone
countryisexchangedforthecurrencyofothercountry.
Itisthepriceofonecurrencyintermsofanother.Itrepresenttheexternal
purchasingpowerofacurrency.

13. Exchange Rates and Meaning of Translation
DirectExchangeRate
•Unitsofdomesticcurrencythatcanbeconvertedintooneunitofforeign
currency.
•Directrate=1.517($1.517U.S.for1Britishpound)
IndirectExchangeRate
•Unitsofforeigncurrencythatcanbeconvertedintooneunitofdomestic
currency.
•Indirectrate=1.00/1.517=.6592($1U.S.for.6592Britishpound)

14. Exchange Rates and Meaning of Translation
MeaningofTranslation:
•Foreigncurrencytranslationiswhenthesubsidiaryentities“translate”their
functionalcurrencytothereportingcurrencyoftheparent.
•Basically,theyarejustconvertingthefunctionalcurrencyfromthe
subsidiaryuptothereportingcurrencyfortheparentcompany.
•Thereportingcurrencywouldbethecurrencythatthecompanyreportstheir
financialstatementsin(i.e.aUScompanywouldreportinU.S.Dollars).

15. Types of currency-related exposures/risk
Foreign exchange risk/exposure:
•Thisriskoccurswhenacompanyengagesinfinancialtransactionsormaintains
financialstatementsinacurrencyotherthanwhereitisheadquartered.Forexample,a
companybasedinCanadathatdoesbusinessinChina–i.e.,receivesfinancial
transactionsinChineseyuan–reportsitsfinancialstatementsinCanadiandollars,is
exposedtoforeignexchangerisk.
•Thefinancialtransactions,whicharereceivedinChineseyuan,mustbeconvertedto
Canadiandollarstobereportedonthecompany’sfinancialstatements.Changesin
theexchangeratebetweentheChineseyuan(foreigncurrency)andCanadiandollar
(domesticcurrency)wouldbetherisk,hencethetermforeignexchangerisk.

16. Types of currency-related exposures
•Foreignexchangeriskcanbecausedbyappreciation/depreciationofthebase
currency,appreciation/depreciationoftheforeigncurrency,oracombinationof
thetwo.Itisamajorrisktoconsiderforexporters/importersandbusinessesthat
tradeininternationalmarkets.
TypesofForeignExchangeRisk/Exposure
•Thethreetypesofforeignexchangeriskinclude:
1.Transactionrisk
2.Economicrisk
3.Translationrisk

17. Types of currency-related exposures
Transactionrisk/exposure
•TransactionExposuremeasuresgainsorlossesthatarisefromthesettlementof
existingfinancialobligationswhosetermsarestatedinforeigncurrency.Transaction
exposuremeasurestheextenttowhichincomefromindividualtransactionsisaffected
byfluctuationsinforeignexchangevalues.
•Itistheriskoflossduetoadverseforeignexchangeratemovementsthataffectthe
homecurrencyvalueofimportandexportcontractsdenominatedinaforeigncurrency.
•Itisalsotherisk,facedbycompaniesinvolvedininternationaltradethatcurrency
exchangerateswillchangeafterthecompanieshavealreadyenteredintofinancial
obligations.

18. Types of currency-related exposures
•Suchexposuretofluctuatingexchangeratescanleadtomajorlossesforfirms.
•Itusuallytakesplacefromchangesinexchangeratesbetweendatesofinceptionofa
contractdenominatedinforeigncurrencyandsettlementofthecontract.
•Forexample,thetransactionexposuremayarisefromthefollowingtransactions:
Purchasingorsellingoncreditwhenpricesarestatedinaforeigncurrency
Borrowingorlendingfundswhenrepaymentistobemadeinaforeigncurrency
Beingapartytoanunperformedforeignexchangeforwardcontract
Acquiringassetsorincurringliabilitiesdenominatedinaforeigncurrency

19. Types of currency-related exposures
EconomicExposure/risk
•Itissometimescalledoperatingexposure.Thisisanexposurethatmeasurestheextent
towhichafirm'smarketvalueissensitivetounexpectedchangesinforeigncurrency.
•Currencyfluctuationsaffectthevalueofthefirms’cashflows,incomestatementand
balancesheetbyalteringitscompetitiveposition.
•Suchatypeofriskisusuallycreatedbymacroeconomicconditionssuchas
geopoliticalinstabilityand/orgovernmentregulations.
•Forexample,aCanadianfurniturecompanythatsellslocallywillfaceeconomicrisk
fromfurnitureimporters,especiallyiftheCanadiancurrencyunexpectedlystrengthens.

20. Types of currency-related exposures
Translationrisk
•Translationrisk,alsoknownastranslationexposure,referstotheriskfacedbya
companyheadquartereddomesticallybutconductingbusinessinaforeignjurisdiction,
andofwhichthecompany’sfinancialperformanceisdenotedinitsdomesticcurrency.
Translationriskishigherwhenacompanyholdsagreaterportionofitsassets,
liabilities,orequitiesinaforeigncurrency.
•Forexample,aparentcompanythatreportsinCanadiandollarsbutoverseesa
subsidiarybasedinChinafacestranslationrisk,asthesubsidiary’sfinancial
performance–whichisinChineseyuan–istranslatedintoCanadiandollarfor
reportingpurposes.

21. Examples of Foreign Exchange Risk
Question1:
•CompanyA,basedinCanada,recentlyenteredintoanagreementtopurchase10advanced
piecesofmachineryfromCompanyB,whichisbasedinEurope.Thepricepermachineryis
€10,000,andtheexchangeratebetweentheeuro(€)andtheCanadiandollar($)is1:1.Aweek
later,whenCompanyAcommitstopurchasingthe10piecesofmachinery,theexchangerate
betweentheeuroandCanadiandollarchangesto1:1.2.Isitanexampleoftransactionrisk,
economicrisk,ortranslationrisk?
Answer:Theaboveisanexampleoftransactionrisk,asthetimedelaybetweentransaction
andsettlementcausedCompanyAtoneedtopaymore,inCanadiandollars,forthepiecesof
machinery.

22. Examples of Foreign Exchange Risk
Question2:
•CompanyA,basedinCanada,reportsitsfinancialstatementsinCanadiandollarsbutconducts
businessinU.S.dollars.Inotherwords,thecompanymakesfinancialtransactionsinUnited
StatesdollarsbutreportsinCanadiandollars.TheexchangeratebetweentheCanadiandollar
andtheUSdollarwas1:1whenthecompanyreporteditsQ1financialresults.However,itis
now1:1.2whenthecompanyreporteditsQ2financialresults.Isitanexampleoftransaction
risk,economicrisk,ortranslationrisk?
Answer:Theaboveisanexampleoftranslationrisk.Thecompany’sfinancialperformance
fromQ1toQ2isnegativelyimpactedduetothetranslationfromtheU.S.dollartothe
Canadiandollar.

23. Determining Functional Currency
Thefunctionalcurrencyisthecurrencyoftheprimaryeconomicenvironmentin
whichtheentityoperatesanditisnormallythecurrencyinwhichtheentity
primarilygeneratesandexpendscash.
IAS-21providesprimaryandsecondaryindicatorsforuseinthedeterminationof
anentity’sfunctionalcurrency,assummarizedbelow.
PrimaryIndicators:
Thecurrencythatmainlyinfluencessalespricesforgoodsandservices(oftenthe
currencyinwhichpricesaredenominatedandsettled).

24. Determining Functional Currency
Thecurrencyofthecountrywhosecompetitiveforcesandregulationsmainly
determinethesalespricesofitsgoodsandservices;and
Thecurrencythatmainlyinfluenceslabor,materialandothercostsofproviding
goodsorservices(oftenthecurrencyinwhichpricesaredenominatedandsettled).
SecondaryIndicators:
•Thecurrencyinwhichfundsfromfinancingactivities(raisingloansandissuing
equity)aregenerated;and
•Thecurrencyinwhichreceiptsfromoperatingactivitiesareusuallyretained.

25. Determining Functional Currency

26. Determining Functional Currency
Note:
•Whentheaboveindicatorsaremixedandthefunctionalcurrencyisnotobvious,
managementusesitsjudgmenttodeterminethefunctionalcurrencythat
mostfaithfullyrepresentstheeconomiceffectsoftheunderlyingtransactions,
eventsandconditions
•Oncedetermined,thefunctionalcurrencyisnotchangedunlessthereisa
changeinthoseunderlyingtransactions,eventsandconditions.

27. Accounting For Foreign Currency Transactions
BusinessesthatinvolveininternationaltradesorMulti-NationalCompany
(MNC)needforeigncurrenciestoenterintodifferenttransactions.
A“Multi-NationalCompany”isonethatconductsitsbusinessinmorethat
onecountryviabranches,jointventures,subsidiariesetc.
Inmostcountries,theforeigncurrencyistreatedasacommodityoramoney-
marketinstrument.
Thus,differentMulti-NationalCompanies(MNCs)involvebuyingand
sellingofforeigncurrency.

28. Accounting For Foreign Currency Transactions
WhatIsaForeignCurrencyTransaction?
Itiswhenacompanyentersintoatransactionthatisdenominatedina
currencyotherthanthecompany’sfunctionalcurrency.
ACompany’sfunctionalcurrencyisthecurrencyoftheprimaryeconomic
environmentinwhichtheentityoperates.
Transactionsmostcommonlywouldincludethebuyingorsellingofgoodsor
servicesalongwithrelatedaccountspayableandaccountsreceivables,aswell
as,borrowingorlendingmoney.

29. Accounting For Foreign Currency Transactions
Therearetwodistincttypesofforeigncurrencytransactions:
1.Conversion/Exchange-istheprocessofexchangingonecurrencyforanother
2.Translation-istherestatementofthevalueofonecurrencyinanother
currency

30. Measurement of Foreign Currency Transaction Gains (Losses)

31. Presentation of Foreign Currency Transaction Gains (Losses)

32. Example:Purchase (Import) Transaction
oAtransactionexposureexistswhentheimporterisrequiredtopayinforeign
currencyandisallowedtopaysometimeafterthepurchasehasbeenmade.
oTheimporterisexposedtotheriskthattheforeigncurrencymightappreciate
(increaseinprice)betweenthedateofpurchaseandthedateofpayment,
therebyincreasingtheU.S.dollarsthathavetobepaidfortheimportedgoods.

33. Example:Purchase (Import) Transaction
•OnDecember16,2009,KenemaPharmacypurchasedPharmaceuticals(drugs)
fromaU.S.supplieratacostof10,000dollars.TheU.S.suppliermadethe
saleonnet30daysopenaccount.
Spotrates:
•December16:ETB12.50;December31:ETB12.40;January15:ETB12.20
Required:
•RecordthenecessaryjournalentriesonthebookofKenemaPharmacy

34. Example: Purchase (Import) Transaction

35. Example 2: Sale (Export) Transaction
•Atransactionexposureexistswhentheexporterallowsthebuyertopayin
foreigncurrencyandallowsthebuyertopaysometimeafterthesalehas
beenmade.
•Theexporterisexposedtotheriskthattheforeigncurrencymight
depreciate(decreaseinvalue)betweenthedateofsaleandthedate
paymentisreceived,therebydecreasingtheEthiopianbirrultimately
collected.

36. Example 2: Sale (Export) Transaction
•OnJune17,2009,ECX,whichusestheperpetualinventorysystem,sold
Coffee(merchandise)withcostofETB122,000toaUScustomerfor
USD15,000,withpaymentdueJuly16,2009.
Spotrates:
•Transactiondate,June17:ETB12.10;Balancesheetdate,June30:
ETB12.07;Settlementdate,July16:ETB12.075
•Recordentriesontransaction,B/sheetandsettlementdatesonthebookof
ECX

37. Example 2: Sale (Export) Transaction

38. Exercise
•OnJune10,2010,GoldStarSoldmerchandisewithcostof100,000Brtoa
UScustomerat$10,000whichdueonSeptember1,2010.
•OnDecember1,2010,ithasalsomadeadditionalsalesofmerchandise
costing195,000BrtoUScustomerfor90-days,8%promissorynoteof
$20,000.DuedateMarch1,2011.

39. Example 3: FC Loan Payable
•OnApr.30,ETBCPurchasedfromaUSsupplierInventoryfor$10,000
translatedatsellingspotrateofUSD1=ETB12.50.
•OnApr.30,ETBCBorrowedUSD10,000fromCBEfor30-days,6%
Loantoberepaidindollars,andpaidtheliabilityofUSsupplier.
Sellingspotrate
•USD1=ETB12.50onapril30
•USD1=ETB12.60onMay30,
•Recordthenecessaryentriesonapril30andMay30

40. Example 3: FC Loan Payable

41. Example 4: Loan Receivable Denominated in a Foreign Currency
•OnMay30,ABCSoldamerchandisetoUScustomerfor60-day,9%
promissorynoteof$10,000.
Spotrates
•May30USD1=ETB12.60
•June30USD1=ETB12.70.
•July29USD1=ETB12.65
•Recordthenecessaryentries

42. Foreign Exchange Matrix

43. Translation of foreign operations
Theobjectiveoftranslatingthefinancialstatementsofforeignoperationsinto
domesticcurrencytermsistoenableincorporationofthosefinancialstatements
intothereportingentity'sfinancialstatementsand/orconsolidatedfinancial
statements.
MeaningofTranslation
•Translation is the conversion of financial statements from one currency to another.
Such that:
Account measured in X Appropriate Account measured in Reporting
Foreign Currency Units Exchange Rate = Currency Equivalent Value

44. Translation of foreign operations
Foreigncurrencytranslation-asdistinctfromconversiondoesn’tinvolve
theactofexchangingonecurrencyforanother.
Itisrequiredattheendofanaccountingperiodwhenacompanystillholds
assetsorliabilitiesinitsSFPwhichwereobtainedorincurredinaforeign
currency.
Ifacompanytradesoverseas,itwillbuyorsellassetsinforeign
currencies.

45. Translation of foreign operations
Twomajoraccountingissueswhiletranslationofsubsidiary’sfinancial
statementsreportedinaforeigncurrencytoreportingcurrencyare:
1.Howshouldtranslationgainsandlossesbereportedinthefinancialstatementsor
shouldbeaccountedfor?Shouldtheybeincludedinincome?
2.Whatexchangerateshouldbeusedtotranslateeachlineoftheforeignfinancial
statementsintothedomesticcurrency?Thatiswhichexchangerateshouldbe
usedtotranslateforeigncurrencyaccountbalancestoreportingcurrency?

46. Translation of Foreign Currency Financial Statements
Translationmethodsmayemployasinglerateormultiplerates.
Therearethreealternativeexchangeratesfortranslationofforeignsubsidiary
financialstatements:currentrate,historicalrate,andaveragerate.
1.Current/closingrate–exchangerateprevailingasofthefinancialstatementdate.
2.Historicalrate–exchangerateprevailingwhenaforeigncurrencyassetwasfirst
acquiredoraforeigncurrencyliabilitywasfirstincurred.
3.Averagerate–issimpleorweightedaverageexchangerateofeithercurrentor
historicalexchangerates.

47. Translation Methods & Criteria for Application
•FunctionalCurrencyofthesubsidiarydetermineswhichtranslationmethodisto
beused.
•Thetranslationmethodusedshouldreflecttheparent’sexposuretoexchangerate
changesofthesubsidiary.
•Isthecurrencyoftheenvironmentinwhichanentityprimarilygeneratesand
expendscash(i.e.itcanbethelocalcurrencyofthesubsidiaryorthecurrencyof
thereportingenterprise(Parent).

48. Functional Currency
•Ifpresentation(parent)currencyisFunctionalcurrency
Usetemporalmethod
Translationadjustmentisreportedasgain/lossinincomestatement
•IfLocalcurrencyofsubsidiaryisFunctionalcurrency
Usecurrentmethod
Translationadjustmentisreportedastranslationadjustmentinequity(b/sheet)

50. Exercise: Presentation Currency is Functional currency
•AUScompany(Maxmillcompany)hadacquiredasubsidiary(SWCompany)from
SwitzerlandonJanuary1,2008.Afteroperatingforoneyearthesubsidiaryhaspresentedthe
followingincomestatement,retainedearningandbalancesheetstatements.Thesubsidiary’s
booksofaccountiskeptinSwissfranc.Onnextslidearegivenbalancesheetand
I/statementforDecember31,2008inSwissfrancs.DirectexchangeratesforSwissfranc
are:
* Representative of historical rate

51. Exercise: Presentation Currency is Functional currency
IncomeStatement&statementofR.E
Revenue Fr.75,000
OperatingExpenses(3000Deprecation) 30,000
NetIncome 45,000
RetainedEarnings1/1/08 10,000
55,000
Dividends (15,000)
RetainedEarnings31/12/08 40,000

52. Exercise: Presentation Currency is Functional currency
Balance Sheet
Cash and receivables Fr. 55,000
Net Plant, Property and Equipment 37,000
Total Asset 92,000
Accounts Payable 32,000
Common stocks 20,000
Retained Earnings 40,000
Total Liability and Equity 92,000

53. Exercise: Presentation Currency is Functional currency
Required:
Translatetheyear-endbalancesheetandincomestatementfromtheSwissfrank
toUSDunderthefollowingcases

54. Case 1: Swiss Frank is Functional currency
Current Method
Cumulativetranslationadjustment(OCI)
•Istheamountbywhichbalancesheet/trialdoesn'tbalance.
•Isreportedinthebalancesheetascumulativetranslationadjustmentunder
currentmethod.

55. Current MethodSwissTranslation
Income StatementFrancsRateU.S. Dollars
Revenue 75,000 0.565442,405
Operating expenses(30,000) 0.5654(16,962)
Net income45,000 25,443
Retained earnings 1/110,000 0.5987 5,987
55,000 31,430
Dividends (15,000) 0.5810(8,715)
Retained earnings 12/3140,000 22,715
Balance Sheet
Cash and receivables55,000 0.532129,266
Net property, plant, equipment37,000 0.532119,688
Total assets92,000 48,954
Accounts payable32,000 0.532117,027
Common stock 20,000 0.598711,974
Retained earnings40,000 22,715
92,000 51,716
Cumulative translation adjustment(2,762)
Total liab. & equity92,000 48,954

56. Case 2: USD is Functional currency
Temporal Method
Translationgain/loss
•Istheamountbywhichbalancesheetwon’tbalance,butitisreportedinthe
incomestatementundertemporalmethod.
•Therefore,
•WetranslateIncomestatement,R/EandBalancesheetusingtemporalratesasitis.
•Computetheamountbywhichtheb/sheetwillnotbalance(translationgainorloss)
•Re-startthetranslationstartingfromIncomestatementbyincludingtranslationgain/
losscomputedbefore.

57. Case 2: Temporal Method –gain/loss…Swiss Tran.
Income Statement Francs RateU.S. Dollars
Revenue 75,000 0.5654 42,405
Operating expenses: depreciation(3,000) 0.5987 (1,796)
Operating expenses: other (27,000) 0.5654 (15,266)
Net income 45,000 25,343
Retained earnings 1/1 10,000 0.5987 5,987
55,000 31,330
Dividends (15,000) 0.5810 (8,715)
Retained earnings 12/31 40,000 22,615
Balance Sheet
Cash and receivables 55,000 0.5321 29,266
Net property, plant, equipment 37,000 0.5987 22,152
Total assets 92,000 51,418
Accounts payable 32,000 0.5321 17,027
Common stock 20,000 0.5987 11,974
Retained earnings 40,000 22,615
Total liab. & equity92,000 51,616
Balancing amount/gain/loss (198)

58. Case 1: USD is Functional currency: Temporal Method …SwissTranslation
Income Statement Francs RateU.S. Dollars
Revenue 75,000 0.5654 42,405
Operating expenses: depreciation(3,000) 0.5987 (1,796)
Operating expenses: other (27,000) 0.5654 (15,266)
Translation loss (198)
Net income 45,000 25,145
Retained earnings 1/1 10,000 0.5987 5,987
55,000 31,132
Dividends (15,000) 0.5810 (8,715)
Retained earnings 12/31 40,000 22,417
Balance Sheet
Cash and receivables 55,000 0.5321 29,266
Net property, plant, equipment 37,000 0.5987 22,152
Total assets 92,000 51,418
Accounts payable 32,000 0.5321 17,027
Common stock 20,000 0.5987 11,974
Retained earnings 40,000 22,417
Total liab. & equity92,000 51,418

59. Disclosure
Thefinancialstatementsmustdisclosethefollowing:
•Theexchangeratesapplied;
•Theamountofrealizedandunrealizedexchangedifferencesincludedinprofitorlossfor
thereportingperiod;
•Netexchangedifferencesrecognizedinaseparatecomponentofequityanda
reconciliationoftheamountofsuchexchangedifferencesatthebeginningandattheend
ofthereportingperiod;
•Thereasonsleadingtheentitytouseapresentationcurrencythatisdifferentfromthe
functionalcurrency;
•Anychangesinthefunctionalcurrencyofeitherthereportingentityorasignificant
foreignoperation

60. Disclosures
•Thestandard(IAS-21)requiresanentitytodisclosesome
importantdisclosuresforthepurposeoffairandfaithful
presentation:
Amountofexchangedifferenceberecognizedinprofitorloss;
Netexchangedifferencesrecognizedunderothercomprehensive
income
whetherpresentationcurrencyisdifferentfromfunctional
currencyandthereasonforthisdifference;any
Whetherthereisanychangeinfunctionalcurrencyandreasonfor
thechange

61. End of Chapter