When you purchase/sell goods from/to other company in other countries
Step1: You need to firstly translate this transaction in functional currency at spot rate.
Step2: You need to retranslate the monetary item (Bank, receivable, payable,NCL,CL) at the year end and leave non-monetary items(NCA, CA).
How to determine your functional currency?
Mainly this is the currency that when you’re trying to prepare your trial balance.
Factors to consider:
- Which currency you use to determine selling price and costs?
- Which currency is your competitor use to determine selling price or costs?
- Which currency you use to finance your business?
(ii) group consolidation
Statement of financial position: closing rate
Statement of comprehensive income: average rate