srilankan accounding standard 21

3. Miss. NIRUJA RAJAKULANAJAGAM
Reg.No-2010BAD025
Index No-BAD10025

4.  Objective
 Scope
 Definitions
 Reporting foreign currency transactions in the
functional currency
 Reporting at the ends of subsequent reporting periods
 Recognition of exchange differences
 Change in functional currency
 Disclosure
 Example
 questions

5. THE OBJECTIVE OF THIS STANDARD IS TO PRESCRIBE
HOW TO INCLUDE FOREIGN CURRENCY TRANSACTION
AND FORIEN OPERATION IN THE FINANCIAL
STATEMENTS OF AN ENTITY AND HOW TO TRANSLATE
FINANCIAL STATEMENT INTO A PRESENTING
CURRENCY

6. THIS STANDARD SHALL BE APPLIED,
IN ACCOUNTING FOR TRANSACTION AND BALANCES IN FORIGN CURRENCIES,
EXCEPT FOR THOSE DERIVATIVE TRANSCATION AND BALANCES THAT ARE WIT
HIN THE SCOPE OF LKAS 39.
IN TRANSLATING THE RESULT AND FINANCIAL POSITION OF FOREIGN OPERATI
ON THAT ARE INCLUDED IN THE FINANCIAL STATEMENT OF ENTITY BY CONSOLI
DATION, PROPOTIONATE CONSOLIDATION OR THE EQUITY METHOD.
IN TRANSLATING ENTITY’S RESULT AND FINANCIAL POSITION INTO A
PRESENTATION CURRENCY.

7. CLOSING RATE
CLOSING RATE IS THE SPOT
EXCHANGE RATE AT THE END O
F THE REPORTING PERIOD

8. EXCHANGE DIFFERENCE IS T
HE DIFFERENCE RESULTING
FROM TRANSLATING A GIVEN
NUMBER OF UNITS OF ONE
CURRENCY INTO ANOTHER
CURRENCY AT DIFFERENCE
EXCHANGE RATE

9. EXCHANGE RATE IS THE
RATIO OF EXCHANGE FO
R TWO CURRENCIES

10. FAIR VALUE IS THE AMOUN
T FOR WHICH AN ASSET
COULD BE EXCHANGED, O
R A LIABILITY BETWEEN
KNOWLADGEBLE, WILLING
PARTIES IN AN ARM’S
LENGTH TRANSACTION

11. FOREIGN CURRENCY IS A
CURRENCY OTHER THAN TH
E FUNCTIONAL CURRENCY O
F
THE ENTITY

12. FUNCTIONAL CURRENCY IS
THE CURRENCY OF THE
PRIMARY ECONOMIC
ENVIRONMENT IN WHICH THE
ENTITY OPERATES

13. MONETARY ITEMS ARE UNITS
OF CURRENCY HELD AND
ASSETS & LIABILITIES TO BE
RECEIVED OR PAID IN A FIXED
OR DETERMINABLE NUMBER
OF UNITS OF A CURRENCY

14. IT IS THE CURRENCY IN WHIC
H THE FINANCIAL STATEMENT
S ARE PRESENTED

15. SPOT EXCHANGE RATE IS T
HE EXCHANGE RATE FOR
IMMEDIATE DELIVERY

16. A foreign currency transaction shall be recorded, on
initial recognition in the functional currency, by applying to
the foreign currency amount the spot exchange rate betwe
en the functional currency and the foreign
currency at the date of the transaction.

17. At the end of each reporting period:
(a) foreign currency monetary items shall be translated using the
closing rate;
(b) non-monetary items that are measured in terms of historical
cost in a foreign currency shall be translated using the
exchange rate at the date of the transaction; and
(c) non-monetary items that are measured at fair value in a
foreign currency shall be translated using the exchange rates
at the date when the fair value was determined.

18. 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 d
uring the period or in previous financial statements shall be
recognised in profit or loss in the period in which they arise.

19. When there is a change in an entity’s
functional currency, the entity shall
apply the translation
procedures applicable to the new
functional currency prospectively from
the date of the change.

20. An entity shall disclose:
(a) the amount of exchange differences recognized in profit or loss except for those arisi
ng on financial instruments measured at fair value through profit or loss in accordanc
e with LKAS 39;
(b) net exchange differences recognized in other comprehensive income and accumulat
ed in a separate component of equity, and a reconciliation of the amount of such exchan
ge differences at the beginning and end of the period.
(C) When the presentation currency is different from the functional currency, that fact sh
all be stated, together with disclosure of the functional currency and the reason for using
a different presentation currency.
(D) When there is a change in the functional currency of either the reporting entity or a si
gnificant foreign operation, that fact and the reason for the change in functional currency
shall be disclosed.
(E) When an entity presents its financial statements in a currency that is different from its
functional currency, it shall describe the financial statements as complying with SLFRSs
only if they comply with all the requirements of SLFRSs

21. Example
On 31st December, 2012 the following balances appeared in the books of Chennai Branch
of an English firm having its HO office in New York:
Amount in ‘ ’ Amount in ‘ ’
Stock on 1st Jan., 2012 2,34,000
Purchases and Sales 15,62,500 23,43,750
Debtors and Creditors 7,65,000 5,10,000
Bills Receivable and Payable 2,04,000 1,78,500
Salaries and Wages 1,00,000 -
Rent, Rates and Taxes 1,06,250 -
Furniture 91,000 -
Bank A/c 5,68,650
New York Account - 5,99,150
36,31,400 36,31,400
Stock on 31st December, 2012 was 6,37,500.
Branch account in New York books showed a debit balance of $ 13,400 on 31st December,
2012 and Furniture appeared in the Head Office books at $ 1,750.
The rate of exchange for 1 $ on 31st December, 2011 was ` 52 and
on 31st December, 2012 was ` 51. The average rate for the year was ` 50.
Prepare in the Head Office books the Profit and Loss a/c and the Balance Sheet of the Bran
ch.

22. Solution
Calculation of Exchange Translation Loss
Chennai Branch Trial Balance (converted in $) as on 31st December, 2012
Dr. Cr. Conversi
on Rate
Dr($). Cr. ($)
Stock on 1st Jan., 2012 234000 52 4500
Purchases & Sales 1562500 2343750 50 31250 46875
Debtors & creditors 765000 510000 51 15000 10000
Receivable and Payable 204000 178500 51 4000 3500
Salaries and wages 100000 50 2000
Rent, Rates and Taxes 106250 50 2125
Furniture 91000 1750
Bank A/c 568650 51 11150
New York Account 599150 13400
Exchange translation loss 2000
3631400 3631400 73775 73775

23. In the books of English Firm (Head Office in New York)
Chennai Branch Profit and Loss Account
for the year ended 31st December, 2012
$ $
Opening stock 4500 Sales 46875
Purchases 31250
Closing stock (12500)
Gross profit c/d 23625
46875 59375
Salaries 2000 Gross profit b/d 23625
Rent, rates and tax 2125
Exchange translation loss 2000
Net Profit c/d 17500
23625 23625

24. Balance Sheet of Chennai Branch
as on 31st December, 2012
Liabilities $ $ Assets $
Head Office A/c 13400 Furniture 1,750 1750
Add : Net profit 17500 30900 Closing Stock 12500
Trade creditors 10000 Trade Debtors 15000
Bills Payable 3500 Bills Receivable 4000
Cash at bank 11150
44400 44400