Exam 24: Accounting for Foreign Currency Transactions

The purpose of 'hedge accounting' is to recognise the offsetting effects on profit or loss of changes in the nominal values of the financial instrument and the hedging instrument.

The Big Mac index is:

Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

IAS 21 requires that the initial recognition of a foreign currency transaction be:

Discuss the accounting treatment required under IAS 21 The Effects of Changes in Foreign Exchange Rates when a reporting entity has a foreign currency monetary items at the reporting date.

How does the accounting treatment for qualifying monetary items differ from other foreign currency monetary items as prescribed under IAS 21 The Effects of Changes in Foreign Exchange Rates?

Discuss the situations in which the discontinuation of fair-value hedge accounting is to be done as provided for in IAS 39.

If an organisation enters a foreign currency swap it will effectively insulate itself against the effects of changes in the spot rates.

There are two broad categories of foreign currency issues that arise in financial reporting.They are:

The effect of a fall in the exchange rate for British pounds relative to other major world currencies would include:

Exchange differences recognised as borrowing costs and included in the cost of an asset,are not recognised:

It seems pointless to distinguish between different types of hedges,as the accounting treatment is the same for all hedging,that is,all changes in fair values of hedging instruments are recognised in profit or loss.

IAS 21 requires that foreign currency monetary items outstanding at reporting date must be:

Exchange gains or losses on a qualifying asset that arise before it ceases to be a qualifying asset are to be deferred and amortised over the life of the asset according to IAS 23.

On 1 May 2014 Moorooba Exporters Plc,an English company,sells inventory to a customer in Singapore.The inventory is sold for $S300 000 and payment is not due until 30 July 2014.The reporting date for Moorooba Exporters Plc is 30 June.The exchange rate information is: 1 May 2014 £1 = $S0.95 30 June 2014 £1 = $S0.95 30 July 2014 £1 = $S0.95 Moorooba Exporters uses a perpetual inventory system.What journal entries are required in Moorooba Exporters Plc's books to record the transaction,adjustments at the end of the period and settlement in accordance with IAS 21 (rounded to the nearest whole pound)? What is the realised gain/loss on the monetary item?

IAS 21 defines an exchange rate as a ratio for the exchange of two currencies at a particular time.

The hedge effectiveness criteria prescribed in IAS 39 have made which type of financial instrument much less effective as a potential hedging instrument?

Which of the following items is a commonly used swap?

The exchange rate for a currency depends on many factors including:

Inventory is an example of a monetary item.