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- 1. SUBSEQUENT MEASUREMENT A foreigncurrency transaction may give rise to assets or liabilities that are denominated in a foreign currency. These assets and liabilities will need to be translated into the entity's functional currency at each reporting date. How they will be translated depends on whether the assets or liabilities are monetary or non-monetary items. Monetary items: Units of currency held and assets and liabilities to be received or paid (in cash), in a fixed number of currency units. Examples of monetary items include cash itself, loans, trade payables, trade receivables and interest payable. Non-monetary items: are not defined by IAS 21, but they are items that are not monetary items. They include tangible non-current assets, investments in other companies, investment properties and deferred taxation (which is a notional amount of tax rather than an actual amount of tax payable.)
- 2. MONETARY OR NON-MONETARYITEMS ASSETS Monetary Items Deferred tax assets Net investment in lease Trade receivables Other receivables Advances (to be received back in cash) Cash and bank (including term deposits) Investments in debt securities Property, plant & equipment Investment property Intangible assets (including goodwill) Right of use assets Investments in equity shares Inventories Advances for goods/services Prepayments for expenses Biological assets Non-monetary Items LIABILITIES Monetary Items Non-monetary Items Refund liability (to be settled in cash) Provisions (to be settled in cash) Deferred tax liability Current tax liability Loans and borrowings Trade payables Accruals (to be paid in cash) Cash dividend payable Lease liability Advance from customer (contract liability) Provisions (to be settled by delivery of non-monetary assets) Deferred Government Grant Equity In practice, equity items (share capital and reserves) are usually treated as non-monetary items.
- 3. MONETARY OR NON-MONETARY? Is there a right/obligation to deliver fixed/determinable amount of currency units? YES Monetary items NO Non-monetary items Foreign currency monetary items outstanding at the reporting date shall be translated using the closing rate. Exchange gain/loss on such translation shall be reported in P/L for the period. Non-monetary items carried at fair value Non-monetary items carried at fair value are translated using the exchange rate at the date when the fair value was determined. Exchange gains or losses on non-monetary items are recognized consistently with the recognition of gains or losses on an item itself. For example, when an item is revalued with FV changes are recognized in OCI, then exchange gain or loss is also recognized in OCI, too. Non-monetary items carried at historical cost Non-monetary items carried at historical cost are translated using the exchange rate on the date of transaction (historical rate). They are not subsequently retranslated in the individual financial statements of the entity unless there has been a change in their underlying value e.g. impairment etc.
- 4. SUBSEQUENT MEASUREMENT This tablesummarizes the subsequent accounting for foreign currency transactions: Monetary items (settled) Exchange rate at the date of receipt or payment Closing rate Not required Exchange rate at the date fair value was measured Recognise in profit or loss Monetary items (unsettled) Non-monetary items carried at cost Non-monetary items carried at fair value Recognise in profit or loss Not applicable Recognized in the same section as the gain or loss from change in valuation is recognized. See NOTE. Asset or liability Re-translate at Exchange Gain or Loss Note: -Under IAS 16 and IAS 38, revaluation gain in recorded in other comprehensive income, therefore, exchange difference shall be recognized in other comprehensive income as well. -Under IAS 40, gain on fair value increase in recognized in profit or loss, therefore, exchange difference shall be recognized in profit or loss as well.