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ACCA Strategic Professional · Strategic Business Reporting (International) · Foreign transactions and entities

Mara Co's functional currency is the rand. Management wishes to present its financial statements in euros for foreign investors. Which statement about translating into the euro presentation currency is correct under IAS 21?

Assets and liabilities are translated at the closing rate, income and expenses at transaction-date rates or a reasonable average, and the resulting exchange differences are taken to other comprehensive income and held in a separate translation reserve in equity.

  1. AAssets and liabilities are translated at the closing rate, income and expenses at transaction-date rates or a suitable average, and differences go to other comprehensive incomeCorrect
  2. BAll items are translated at the closing rate and differences go to profit or loss
  3. CNon-monetary assets are translated at historical rates and all differences go to profit or loss
  4. DEquity is translated at the closing rate and income at the opening rate

Explanation

IAS 21 allows any presentation currency. Where it differs from the functional currency, assets and liabilities use the closing rate, income and expenses use transaction-date rates (or an average if a reasonable approximation), and resulting exchange differences are recognised in other comprehensive income and accumulated in a translation reserve in equity.

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