1. Functional currency is the currency of the primary economic environment in which the entity operates
  2. Determining the functional currency of the foreign operation
    • Primary factors: influence sales price and cost; Currency of the country whose regulations determine the sales price
    • Secondary factors:
    • Funds from financing activities; seats from operating activities retained;
    • Extension of the parent(follow parent) OR significant degree of autonomy (follow its own)
    • High potion of foreign operations activities all transactions with parent(follow parent) the cash flows from the foreign operation affect the cash flows of the parent and readily available for remittance(follow parent)
    • Cash flows are sufficient to service debt(folow its own)
  3. Change and functional currency functional currency is not changed unless there is change in the underlying transactions
    Translate all the items into the new functional currency using spot rate at the date of change
  4. Foreign currency to functional currency accounting treatment
    • initial recognition: rate at the date of the transaction; average rate is acceptable if there is no fluctuation
    • Subsequent measurement: Monetary items at closing rate; exchange rate difference between the settlement and the translation recognized in profit or loss(real)
    • non-monetary items: at historical cost;use the exchange rate at the date of the transaction
    • non monetary item measured at FV (IP@FV or PPE@revaluation): exChange rate at the date of the fair value is measured; exchange rates difference recognized in accordance with the requirements of the nonmonetary item
  5. Functional currency to presentation currency
    • assets and liabilities, goodwill and fair value adjustments @closing
    • share Capital at historical rate
    • Retained earnings is split into years and use their respective average rate
    • Income and expense @ average rate
    • Dividend paid at spots rate at the date of dividend payment
    • Exchange difference recognized in oci(non real)
  6. Disposal of foreign operation
    • amount in oci reclassified to p&L
    • subsidiary :reserve attributed to nci is derecognize
    • Associates: reClassify to p&l to proportionate share
Card Set