1. FOREIGN CURRENCY TRANSLATION
IFRS for SME ( ) vs
IAS 21

2. Summary 1 (Objective) Scope 301 9-11
IFRS for SME
IAS 21
Scope
Functional Currency
Reporting Foreign Transactions in FC
Initial recognition
End of Subsequent Periods
30.9 – 30.11
Net Investment in
Foreign Ops
1 (Objective)
9-11
20-22
23,28,30
15,32

3. Summary 35-37 Change in FC 30.14-30.16 Use of Presentation Currency
IFRS for SME
IAS 21
Change in FC
Use of Presentation Currency
Translation
Translation of a Foreign Ops
Disclosures
35-37
38-43
45,47
51-54

4. DEFINITIONS 8, SAME Functional Currency
IFRS for SME
IAS 21
Functional Currency
Currency of the primary economic environment in which the entity operates.
(30.2)
Presentation Currency
Currency in which the financial statements are presented.
(Glossary)
8, SAME

5. Functional Currency 20, SAME General
IFRS for SME
IAS 21
General
All components of the financial statements are measured in the functional currency.
All transactions entered into in currencies other than the functional currency are treated as transactions in a foreign currency.
(30.6)
20, SAME

6. Functional Currency Foreign Currency Transactions
IFRS for SME
IAS 21
Foreign Currency Transactions
A transaction in a foreign currency is recorded in the functional currency using the exchange rate at the date of transaction .
(30.7)
21, SAME

7. Example
OMG Company was formed on January 1, 2010, when the exchange rate is P40: $1. OMG is domiciled in Occidental Mindoro, Philippines. The following are the transactions in Year 1:
Transactions
At local currency
At foreign currency
Jan 1
Received $100T from parent company in exchange for common stock.
Dr. Cash P 4M
Cr. C/S P4M
Dr. Cash $100T
Cr. C/S $100T
Purchased equipment for $20T from a 3rd party supplier in the US.
Dr. PPE P 800T
Cr. A/P P 800T
Dr. PPE $20T
Cr. A/P $20T
June 1
Paid the liability for the equipment. The forex rate is P43:$1
Dr. A/P P 800T
Dr. Forex loss P 60T
Cr. Cash P860T
Dr. A/P $20T
Cr. Cash $20T

8. Functional Currency 23, SAME Foreign Currency Transactions
IFRS for SME
IAS 21
Foreign Currency Transactions
At the end of each reporting period, foreign currency monetary balances are translated using the exchange rate at the closing rate.
(30.9)
23, SAME

9. Functional Currency 23, SAME Foreign Currency Transactions
IFRS for SME
IAS 21
Foreign Currency Transactions
Non-monetary balances denominated in a foreign currency and carried:
• At cost: reported using the exchange rate at the date of the transaction.
• At fair value: reported using the exchange rate at the date when the fair values were determined.
(30.9)
23, SAME

10. Example
Suppose Php is the Functional Currency. The accounting books were in USD. (Closing rate is P45:$1)

11. Example

12. Functional Currency
IFRS for SME
IAS 21
Recognition of Exchange Differences
Any cumulative exchange differences on a monetary item that forms part of a net investment in a foreign operation that were previously recognized in equity shall not again be recognized in profit or loss on disposal of a foreign operation.
(30.13)
32 DIFFERENCE: Exchange differences on a monetary item that forms part of a net investment in a foreign operation are reclassified from equity to profit or loss on disposal of the foreign operation.

13. Functional Currency 35-37, SAME Change in Functional Currency
IFRS for SME
IAS 21
Change in Functional Currency
A change is justified only if there are changes in underlying transactions, events and conditions that are relevant to the entity.
The effect of a change in functional currency is accounted for prospectively from the date of the change.
( )
35-37, SAME

14. Presentation Currency
IFRS for SME
IAS 21
General
An entity may choose to present its financial statements in any currency. If the presentation currency differs from the functional currency, an entity translates its results and financial position into the presentation currency.
(30.17)
38, SAME

15. Presentation Currency
IFRS for SME
IAS 21
Translation to the
Presentation Currency
The assets and liabilities are translated at the closing rate at the date of the statement of financial position; income and expenses are translated using the exchange rates at the dates of the transactions. All resulting exchange differences are recognized in other comprehensive income.
(30.18)
39 DIFFERENCE: Cumulative translation differences on foreign operations initially recognized in equity are recycled to profit or loss upon disposal of the foreign operation.

16. At functional currency (USD)
Example
Suppose Php is the Presentation Currency. The accounting books were in USD. (Closing rate is P45:$1)
At functional currency (USD)
Forex rate
In Php
Sales
120,000
P44:$1
5,280,000
Cost of goods sold
(80,000)
P40:$1
(3,200,000)
Gross profit
40,000
2,080,000
OPEX
(20,000)
(800,000)
Net Income
20,000
1,280,000

17. At functional currency (USD)
Forex rate
In Php
Cash (in USD savings account)
160,000
P45:$1
7,200,000
Accounts receivable
60,000
2,700,000
Inventory
120,000
5,400,000
Equipment
80,000
3,600,000
Total assets
420,000
18,900,000
Accounts payable
100,000
4,500,000
Common stock
300,000
P40:$1
12,000,000
Retained Earnings
20,000
1,280,000
FCTA
1,120,000
Total liabilities and equity