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Section 8200: Foreign Currency
[U.S. GAAP Codification Topic]
830 Foreign currency matters
830-10 Overall
830-20 Foreign currency transactions
830-30 Translation of financial statements
[U.S. GAAP before the Codification]
SFAS 52, December 1981, Foreign Currency Translation
1. Functional currency
(1) Functional currency
--> the currency of the primary economic environment
--> of the entity
(2) Accounting transactions are measured and recorded in functional currency
2. Reporting currency
Reporting currency
--> the currency used to report financial statements
3. Translation
If reporting currency is not functional currency
--> all items reported in financial statements are
--> translated from functional currency to reporting currency
4. Remeasurement
(1) If accounting transactions are recorded in local currency that is not functional currency
--> remeasure accounting records from local currency to functional currency
--> then translate from functional currency to reporting currency
(2) Accounting records after remeasurement
--> will be same as (a)
(a) accounting records when all transactions were recorded in functional currency
5. Exchange rate for remeasurement
(1) For nonmonetary accounts
--> use historical rates between local currency and functional currency
(2) For revenue and expenses resulted from nonmonetary accounts
--> use historical rates between local currency and functional currency
(3) For monetary accounts
--> use current rate between local currency and functional currency
(4) Foreign currency transaction gains and losses are also recognized
6. Foreign currency transaction gains and losses are
--> recognized in income
--> with some exceptions
--> as explained in the Codification Topic 830-20
7. Foreign currency translation adjustments are
--> reported in other comprehensive income (OCI)
--> as explained in the Codification Topic 830-30
8. Changes in functional currency
When functional currency changes
--> previous financial statements are not restated
9. Foreign currency transactions
Foreign currency transaction
--> transactions denominated in the currency other than functional currency
10. Recognition of foreign currency transactions
Foreign currency transactions are recorded
--> in functional currency
--> using the exchange rate at the transaction date
11. Foreign currency transaction gains and losses
Gains and losses due to the changes in exchange rates between (A) and (B)
(A) transaction date
(B) settlement date
12. An example
US dollar is functional currency
Transaction is denominated in Euro
November 1, 20x1 when €1 = $ 1.40
Sold 200 units of products at €10 per unit.
Accounts receivable $2,800
Sales $2,800
December 15, 20x1 when €1 = $ 1.45
Collected €2000
Cash $2,900
Accounts receivable $2,800
Foreign currency transaction gain $100
13. Foreign currency transaction gains and losses are
--> recognized in income
--> except for the cases listed in (C), (D) and (E)
(C) foreign currency transactions
--> designated as hedges of a net investment in foreign operations
--> gains and losses are reported in other comprehensive income (OCI)
(D) intra-entity foreign currency transactions
--> with long-term investment nature
--> such transactions are considered as part of the net investment
(E) changes in fair value of available for sale debt securities
--> in foreign currency are
--> reported in other comprehensive income (OCI)
14. Translation of foreign currency financial statements
(1) All items of financial statements are translated
--> from functional currency to reporting entity
--> using a current exchange rate
(2) For assets and liabilities
--> current exchange rate at the balance sheet date
(3) For revenue and expenses
--> current exchange rate at the time of recognition
--> or average rate during the period if appropriate
(4) For stockholders' equity
--> historical exchange rate at the time of transaction
15. Translation adjustments
(1) Translation adjustments incur
--> when financial statements are translated
--> from functional currency to reporting currency
(2) Translation adjustments are
--> reported in other comprehensive income
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