Financial Reporting · Foreign currency transactions

Monetary vs Non-Monetary Items at the Reporting Date (IAS 21)

Updated 11 October 2026 · Fact-checked

At the reporting date, IAS 21 says you retranslate monetary items (cash, receivables, payables, loans) at the closing rate. You keep non-monetary items carried at historical cost at the rate on the transaction date. Non-monetary items at fair value use the rate on the date fair value was measured.

Understand Monetary and Non-Monetary Items at the Reporting Date

A foreign currency transaction is first recorded at the spot rate on the transaction date. Time then passes and exchange rates move. At the reporting date you must decide which balances to update for the new rate and which to leave alone. IAS 21 uses one test: is the item monetary or non-monetary?

A monetary item is money held, or an asset or liability that will be settled in a fixed or determinable amount of currency. Examples are cash, trade receivables, trade payables, loans and accruals. The amount in foreign currency is fixed, so its value in your own currency changes as the rate moves. That is why you retranslate it at the closing rate (the spot rate at the reporting date).

A non-monetary item has no right to receive or duty to pay a fixed amount of currency. Examples are property, plant and equipment, inventory, intangible assets, prepayments and deposits paid for goods or services, and equity investments. Their value is not fixed in currency terms, so you do not retranslate them just because the rate moved.

How you carry a non-monetary item decides the rate. If it is at historical cost, use the rate on the date of the transaction and never change it. If it is at fair value (for example a revalued asset), translate the fair value at the rate on the date that fair value was measured.

The exchange difference on retranslating a monetary item normally goes to profit or loss. For non-monetary items at fair value, the exchange part of any gain or loss follows the fair value gain or loss: to other comprehensive income if that gain goes to OCI (for example a revaluation surplus), or to profit or loss if the fair value gain goes there.

Key rules to remember

Monetary items at reporting date: Carrying amount = foreign currency amount ÷ closing rate (or × closing rate, depending on how the rate is quoted); Compare with the amount already recorded. The difference is an exchange gain or loss, normally in profit or loss.
Non-monetary items at historical cost: Carrying amount = foreign currency cost at the transaction date rate; Do not retranslate. The amount stays fixed.
Non-monetary items at fair value: Carrying amount = foreign currency fair value at the rate on the date fair value was measured; The exchange difference is recognised in the same place as the fair value gain or loss (OCI or profit or loss).
Exchange difference: Exchange difference = retranslated amount − previously recorded amount; For a liability, a higher amount is a loss. For an asset, a higher amount is a gain.
Quotation direction: Rate quoted as foreign currency per 1 unit of home currency: divide. Rate quoted as home currency per 1 unit of foreign currency: multiply.; Check the wording of the rate before you calculate.

How to solve Monetary and Non-Monetary Items at the Reporting Date questions

Use this order for any question on retranslation at the reporting date.

1List every foreign currency item in the question and note its foreign currency amount.
2Classify each as monetary (cash, receivables, payables, loans) or non-monetary (PPE, inventory, prepayments, equity investments).
3For each monetary item, convert the foreign currency amount at the closing rate.
4For each non-monetary item, identify the measurement basis. Cost uses the transaction date rate. Fair value uses the rate on the date of the fair value measurement.
5For monetary items, compare the new amount with the amount already recorded and state the exchange gain or loss. Check whether it is a gain or loss using asset or liability logic.
6Post the exchange difference to profit or loss, except for non-monetary items at fair value where it follows the fair value gain or loss.
7State the final carrying amounts clearly so the marker can see each figure.

Quickest way: Two-column sort and convert

When to use it: Use this in Section A and B objective questions where you have a list of balances and one closing rate.

Draw two columns: Retranslate and Leave alone.
Put cash, receivables, payables and loans in Retranslate. Put PPE, inventory, prepayments and deposits at cost in Leave alone.
Convert only the first column at the closing rate.
For the gain or loss, remember: payable up means loss, receivable up means gain.
Read the question wording to see which figure is asked for: carrying amount, exchange difference, or profit or loss charge.

Common mistakes in Monetary and Non-Monetary Items at the Reporting Date

Retranslating inventory or PPE at the closing rate when it is held at cost
Students assume every foreign currency balance moves with the rate.
Fix: Ask if the item is monetary. If not and it is at cost, keep the transaction date rate.
Treating prepayments or deposits paid for goods as monetary
They look like receivables because cash has left the business.
Fix: They give a right to goods or services, not cash, so they are non-monetary. Leave them at the original rate.
Multiplying when the rate should divide
Students do not read how the rate is quoted.
Fix: Check the unit. If the rate is foreign currency per 1 home currency unit, divide. Sense check: does the answer look reasonable?
Getting the gain or loss direction wrong on payables
Students think a bigger number is always good.
Fix: A larger liability in home currency is a loss. A larger receivable is a gain. Say it out loud for each item.
Retranslating a revalued asset at the closing rate without checking the valuation date
Students mix up the closing rate with the rate on the fair value date.
Fix: Use the rate on the date the fair value was measured. If the valuation is at the reporting date, the two rates may match.
Taking the whole exchange difference on a monetary item to OCI
Students confuse it with a revaluation gain.
Fix: Exchange differences on monetary items go to profit or loss. Only the exchange part of a non-monetary item at fair value follows the fair value gain.

Worked examples

Example 1

On 1 November Year 1, Alpha (functional currency $) bought inventory from a foreign supplier for 120,000 dinars (D) on credit, when the rate was D4 = $1. Alpha has not paid at its year end of 31 December Year 1, when the closing rate is D5 = $1. The inventory is still held and is not written down. State the carrying amounts of the payable and the inventory at the year end and the exchange difference.

Show the solution

Initial record: 120,000 ÷ 4 = $30,000. Dr Inventory $30,000, Cr Payables $30,000.
Payable is monetary, so retranslate at closing rate: 120,000 ÷ 5 = $24,000.
Exchange difference = $30,000 − $24,000 = $6,000. The liability fell, so this is a gain.
Dr Payables $6,000, Cr Profit or loss (exchange gain) $6,000.
Inventory is non-monetary and held at cost. It stays at $30,000.

Answer: Payable $24,000; inventory $30,000; exchange gain of $6,000 in profit or loss.

Example 2

On 1 March Year 1, Beta (functional currency $) bought land for 500,000 euros (€) when the rate was €1 = $1.25 and paid in cash immediately. At 31 December Year 1, the land is held at cost. Beta also holds a loan receivable of €80,000 lent on 1 October Year 1 at €1 = $1.20. The closing rate at 31 December Year 1 is €1 = $1.10. State the carrying amounts at the year end and the exchange difference in profit or loss.

Show the solution

Land is non-monetary and at cost: €500,000 × 1.25 = $625,000. No retranslation.
Loan receivable is monetary. Initial amount: €80,000 × 1.20 = $96,000.
Retranslate at closing rate: €80,000 × 1.10 = $88,000.
Exchange difference = $96,000 − $88,000 = $8,000. The asset fell, so this is a loss.
Dr Profit or loss (exchange loss) $8,000, Cr Loan receivable $8,000.

Answer: Land $625,000; loan receivable $88,000; exchange loss of $8,000 in profit or loss.

Exam tips

Start every answer by labelling each item monetary or non-monetary. Markers reward the classification.
Watch for prepayments, deposits and inventory in objective questions. They are the usual traps and are non-monetary.
Read how the rate is quoted before you calculate, and check the answer looks sensible.
For a non-monetary item at fair value, find the date the fair value was measured, not just the year end.
In constructed response questions, show the initial entry, the retranslation and the exchange difference as separate lines so you earn method marks.

Practice questions from Foreign currency transactions

Monetary and Non-Monetary Items at the Reporting Date: frequently asked questions

What is the difference between monetary and non-monetary items under IAS 21?

Monetary items are money held and assets or liabilities settled in a fixed or determinable amount of currency, such as cash, receivables, payables and loans. Non-monetary items have no such right or duty, such as PPE, inventory and prepayments. The difference decides whether you retranslate at the closing rate.

How do I translate foreign currency payables at the year end?

A payable is monetary, so convert the foreign currency amount at the closing rate. Compare it with the amount recorded at the transaction date. The difference is an exchange gain if the liability fell, or a loss if it rose, and normally goes to profit or loss.

Which rate do I use for non-monetary items at fair value?

Use the rate on the date the fair value was measured. The exchange difference is recognised in the same place as the fair value gain or loss. This is OCI for a revaluation surplus and profit or loss otherwise.

Is a deposit paid to a foreign supplier monetary?

Generally no. If the deposit gives the right to receive goods or services rather than cash, it is non-monetary. You keep it at the rate on the date it was paid.