FOREIGN CURRENCY TRANSLATION IFRS for SME (30.1-30.27) vs IAS 21

Summary 1 (Objective) Scope 301 9-11 IFRS for SME IAS 21 Scope 301 Functional Currency 30.2-30.5 Reporting Foreign Transactions in FC Initial recognition 30.6-30.8 End of Subsequent Periods 30.9 – 30.11 Net Investment in Foreign Ops 30.12-30.13 1 (Objective) 9-11 20-22 23,28,30 15,32

Summary 35-37 Change in FC 30.14-30.16 Use of Presentation Currency IFRS for SME IAS 21 Change in FC 30.14-30.16 Use of Presentation Currency Translation 30.17-30.21 Translation of a Foreign Ops 30.22-30.23 Disclosures 30.24-30.27 35-37 38-43 45,47 51-54

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

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

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

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

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

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

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

Example

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.

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. (30.14-30.16) 35-37, SAME

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

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.

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

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