Key Concepts:
Functional Currency :
The primary currency in which the entity operates (determined based on economic factors).
Presentation Currency :
The currency in which financial statements are presented (may differ from the functional currency).
Requirements:
1. Foreign Currency Transactions :
- Recorded in the functional currency using the spot exchange rate at the transaction date.
- Monetary items (e.g., cash, receivables/payables) are re-measured at the closing rate at period-end, with exchange differences recognized in surplus/deficit.
-Non-monetary items (e.g., assets) are retained at historical cost unless measured at fair value.
2. Translating Foreign Operations’ Financial Statements :
- Assets/liabilities: Translated using the closing rate.
- Revenues/expenses: Translated using the exchange rate at the transaction date or an average rate.
- Exchange differences are recognized in equity (e.g., "foreign currency translation reserve").
- Disclosures:
- Details of exchange differences recognized in surplus/deficit and equity.
- Reasons for changes in functional or presentation currency.