lkas 21

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srilankan accounding standard 21

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lkas 21

  1. 1. Miss. NIRUJA RAJAKULANAJAGAM Reg.No-2010BAD025 Index No-BAD10025
  2. 2.  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
  3. 3. 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
  4. 4. 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.
  5. 5. CLOSING RATE CLOSING RATE IS THE SPOT EXCHANGE RATE AT THE END O F THE REPORTING PERIOD
  6. 6. EXCHANGE DIFFERENCE IS T HE DIFFERENCE RESULTING FROM TRANSLATING A GIVEN NUMBER OF UNITS OF ONE CURRENCY INTO ANOTHER CURRENCY AT DIFFERENCE EXCHANGE RATE
  7. 7. EXCHANGE RATE IS THE RATIO OF EXCHANGE FO R TWO CURRENCIES
  8. 8. 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
  9. 9. FOREIGN CURRENCY IS A CURRENCY OTHER THAN TH E FUNCTIONAL CURRENCY O F THE ENTITY
  10. 10. FUNCTIONAL CURRENCY IS THE CURRENCY OF THE PRIMARY ECONOMIC ENVIRONMENT IN WHICH THE ENTITY OPERATES
  11. 11. 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
  12. 12. IT IS THE CURRENCY IN WHIC H THE FINANCIAL STATEMENT S ARE PRESENTED
  13. 13. SPOT EXCHANGE RATE IS T HE EXCHANGE RATE FOR IMMEDIATE DELIVERY
  14. 14. 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.
  15. 15. 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.
  16. 16. 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.
  17. 17. 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.
  18. 18. 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
  19. 19. 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.
  20. 20. 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
  21. 21. 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
  22. 22. 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

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