MyCIMA

Financial Analysis IAS 21 - Exchange rate differences

Replies : 5
Keywords: IAS, IAS 21

Hi ,

I wonder if any one can clear this up for me. I am trying to work out where to account for exchange rate differences. Sometimes it is accounted for in the Income statement (November 2006 paper), and then other times it is accounted for in the Statement of changes in equity(November 2008 paper)

Is there a general rule to this. I seem to have come against a brick wall on this. I have tried to read the standard on this, but as always it seems to make me more confused.

Hope someone can clear this up for me.

Paul.

Been a while

Hi Paul, Its been a while since I studied the IAS's but I believe that an exchange gain /loss would normally be taken to the income statement when it is a result of a transaction (ie cash payments/receipts). Gains or losses made when converting assets/liabilites from their transactional currency to the accounts presentation currency would typically be shown on the SOCIE. Hope that helps.

Currency

I have 20 bank accounts in lots of different bank accounts and account for exchange gains within cost of sales but are considering a move to include it in overheads. Either way is acceptable (according to PWC) but I wouldn't include it in equity unless there is some revaluation of shares involved in the exchange difference.

IAS 21

IAS 21, Para. 28:

"Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise, except as described in paragraph 32."

The exceptions are for fx derivatives covered by IAS 39 or for items which are recognised in other comprehensive income.

I would only expect to see fx changes in the SoCE where you're incorporating a foreign subsidiary/operation.

currency exchange

I used to deal with this but i always found them different from the ones offered through major bank, wondering why?

 

Forex

There are many exchange brokers. We use TTT Moneycorp.