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ACCA Applied Skills · Financial Reporting · Foreign currency transactions

Delta Co (functional currency $) holds a monetary payable in euros that is outstanding at the reporting date. Which treatment of the exchange difference arising on retranslation at the closing rate is correct under IAS 21?

Exchange differences on retranslating monetary items at the closing rate are recognised in profit or loss in the period they arise. They are not deferred, capitalised or taken to equity, which applies only in limited cases such as net investments.

  1. ARecognise it in profit or loss for the periodCorrect
  2. BRecognise it in other comprehensive income and hold it in equity
  3. CDefer it in the statement of financial position and amortise it over the term of the payable
  4. DAdd it to the cost of the related asset purchased

Explanation

IAS 21 requires exchange differences on settlement or retranslation of monetary items to be recognised in profit or loss in the period they arise. OCI treatment applies only to net investment in a foreign operation in consolidated statements and some non-monetary items measured at fair value through OCI. Deferral or capitalisation is not permitted.

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