Foreign currency
IAS 21 generally records a foreign-currency transaction initially in the functional currency using the transaction-date spot rate. At reporting dates, translate monetary items at the closing rate; non-monetary items follow the historical-cost or fair-value translation rules as applicable. Translation into a presentation currency and consolidation of foreign operations are separate steps. Do not define foreign currency solely by the country in which the entity operates.
Worked example
A company with euro functional currency purchases goods for $1,000 when $1 equals €0.90. It initially records the transaction at €900, subject to the relevant transaction facts and standards.
Common mistake
Assuming the parent’s presentation currency is automatically the subsidiary’s functional currency or using the closing rate to translate every item.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |