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Methods of foreign currency translation (current rate, current and non current methods).
1. Methods of foreign currency
translation (current rate, current
and non current methods).
Presented by
MANASA B G
2nd M,com
G.F.G.C.W
Holenarasipura
Under the guidance of
Sundar B. N.
Asst. Prof. & Course Co-ordinator
GFGCW, PG Studies in Commerce
Holenarasipura
2. CONTENTS
Meaning of international accounting
Foreign exchange translation, meaning, process,
methods.
Example of balance sheet items.
Illustration on foreign currency translation.
Advantages and disadvantages.
Conclusion.
Reference.
3. MEANING OF INTERNATIONAL ACCOUNTING
International accounting would involve accounting for
international transactions, the operational aspects of
international firms, comparison of accounting principles and the
procedure by which they were established.
4. Foreign currency translation
Meaning
Foreign currency translation refers to the accounting method in which
companies having International business translate the financial of their
international subsidiaries into its domestic or the functional currency with the
motive of meeting the financial reporting requirements,
Where any gains or losses arising out of such transactions are to recorded in
the consolidated financial statements.
5. Foreign currency translation process
1. Determine the functional currency of the foreign entity.
2. Remeasure the financial statements of the foreign entity
into the reporting currency of the parent company.
3. Record gains and losses on the transaction of currencies.
6. Foreign currency translation methods
There Are basically four methods, namely
1. Current rate or single rate translation method
2. Current/ noncurrent translation method
3. Monetary/non- monetary translation method
4. Temporal translation method
7. 1. Single rate or current rate translation method
According to this method of currency translation all the
assets and liabilities of the foreign subsidiary are
translated into the parent company’s functional currency
at the current rate or the exchange rate prevailing on the
balance sheet of the company.
8. 2. Current/non current method
All the foreign exchange denominated current assets and current
liabilities are translated at current exchange rate and non-current assets
and liabilities are translated at historical rate.
Indian accounting standard has prescribed for these of the current/ non
current method for translation of integral operations
9. Balance sheet
Liabilities
Current liabilities
Short term loans
Accounts payable
Income tax
Creditors
Interest payable
Weges payable
Unearned revenues
Non-current liabilities
Notes payable
Bonds payable
Equity capital
Bonds and debenture
Fixed deposits
Long-term debts
Long term lease liabilities
Term loans
10. Assets
Current assets
Cash and cash equivalents
Bill’s receivable
Inventories
Prepaid expenses
Short term investment
Supplies
Other receivables
Fixed assets
Land and buildings
Plant and equipment’s
Machinery
Land improvements
13. Advantages and disadvantages
Advantages
1) This process of the currency translation analysis financial
statements in a better manner as if more than a single currency is used;
then it makes the analysis difficult.
Disadvantages
1) If there is a major change in the exchange rate ,then
considering them in income statements may significantly
fluctuations in the current years earnings
14. Conclusion
Business with international operations are required to translate their
transactions to their functional currency, which is generally their
domestic currency. With the fluctuation in the foreign exchange the
Value of the company’s assets and is also subject to variations.