Forex transactions in tally

Is that item monetary or non-monetary? If you determine the nature of your item incorrectly, it can lead to totally wrong presentation in the financial statements. It’s not so important when you consolidate and forex transactions in tally need to translate some foreign subsidiary to your own presentation currency, right? Because, the rules in IAS 21 The Effects of Changes in Foreign Exchange Rates say that in such a case, you translate all your assets and liabilities by the closing rate.

But when it comes to translating individual items and transactions in your own financial statements to the functional currency, then the rules are more complex. For translation of the amounts in foreign currency to your functional currency, the standard IAS 21 states that you should re-calculate all items after initial recognition using exchange rate based on characteristics of the specific item. What is monetary and what is non-monetary? A right to receive or obligation to deliver a fixed or determinable number of units of currency. All monetary items DO have this feature. All non-monetary items DO NOT have this feature. Once you apply this rule of thumb, it should be easy to determine what’s monetary and what’s not.

As you can see from this table, some items are crystal clear, but some of them are not and further questions arise. Advances paid or received You need to assess the character and substance of every advance paid or received carefully, because some advances can be monetary and some of them can be non-monetary. However, I have explained particularly this issue in my article on Accounting for prepayments in foreign currency under IFRS together with the numerical example, so please read there if interested. Deferred taxation Currently, this is a little bit unclear in the standards. Investments in preference shares Investments in preference shares are another item that requires our careful judgment.

More specifically, you should assess the rights attaching to the shares. In fact, both IAS 39 and IFRS 9 say that investments in equity instruments are non-monetary items. It means that if terms of the preference shares lead to the shares classified as equity instrument, then they are non-monetary. On the other hand, if terms of the preference shares lead to the shares being classified as a financial liability, then it should be treated as a monetary item. For example, the share that DOES specify mandatory redemption by the issuer at some future date would represent a liability. Share capital in a foreign currency Some companies issue their share capital in a foreign currency. IAS 39 specify whether the share capital in a foreign currency is monetary or non-monetary item and how to treat the difference.

In practice, the ordinary share capital is viewed as non-monetary item and maintained at the historical rates. The reason is that its retranslation to closing rate does not affect the cash flows of the company. However, I have experienced the opposite in the past. A few companies treated their foreign currency share capital as a monetary item, but they took foreign exchange differences to the statement of other comprehensive income, and not to profit or loss. In this case, total equity is the same as the share capital would have been kept at the historical cost. Is there any item you would like me to explain further?

Please leave me comment right below article. Do not forget to share this article with your friends. Check your inbox or spam folder now to confirm your subscription. Please check your inbox to confirm your subscription. Thanks for all the information that you share with us. So, we have a Deferred Revenue in our financial statements. 2013 when the exchange rate was 6.

3, but in 2014, they had a devaluation, and the close exchange rate was 49. 99 and the average rate was 30. I can not identify whether it is a monetary or non-monetary item. I should have clarified that an article deals with non-hyperinflationary economy. In fact, you should restate your comparative figures in line with IAS 29 and IAS 21 paragraph 43.

In the company am working with, the reporting currency is different from USD, however, the majority of transactions are being conducted in USD. A big part of our deferred revenue is in USD currency. S, this can be restate your comparative figures in line with IAS 29 and IAS 21 paragraph 43. What rate to use, prevailing rate when the invoice was issued or prevailing rate when the revenue is recognized? It is indeed the best website and useful information.

Thank you for your training on IFRS its really helpful. Is your exchange loss of Rwf 500 already realised? For the first time in my life i feel like i can conquer any Accounting problem. Kindly explain in case of Monetary items the exhange rate difference is taken to Profit or Loss account or to comprehensive income? In profit or loss when you translate to your functional currency. It’s encouraging to see how simple you make IFRSs for the masses.

The profession needs more people like you! Thank you very much Silvia for clarification ,really the topic is confused for us. Great job and here’s my question. What rate should the invoice and Payment be recognized at? I hope this message find you well.

I am from Brazil and I work in a company that reports the statements in accordance to the IFRs purposes. My question is related to the monetary and non monetary principles. Considering that my local currency is reais and Brazil is not longer a hyper Inflationary economy. I understand your concerns, but unfortunately no, inventories are non-monetary item as there’s no right to receive cash in the future. My company records transactions in USD but wants to report in another currency. If I understand you correctly, Property plant and equipment should be translated at the rate on the day the items were bought. Please I’m not so clear on the rate for Accumulated depreciation.