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Translation of a foreign currency transaction

Initially use the transaction-date spot rate, subject to permitted approximations and relevant guidance for advance consideration. At each reporting date, translate foreign-currency monetary items at the closing rate. Non-monetary items use rates determined by their historical-cost or fair-value measurement. Exchange differences are generally recognised in profit or loss, subject to exceptions such as qualifying net-investment items. Translating a foreign operation into presentation currency is a different procedure.

Worked example

A euro-functional company records a $1,000 payable when $1 is €0.90, or €900. At year end $1 is €0.95, so the payable is €950 and a €50 exchange loss arises, assuming the payable remains unpaid.

Common mistake

Applying the closing rate to the original transaction on initial recognition or treating exchange differences on all items identically.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA FR Direct September 2026–June 2027
ACCA SBR Direct September 2026–June 2027