Ind AS 21

The primary objective of Ind AS 21 is to establish the principles and procedures for the:

• Recognition, measurement, and disclosure of the effects of changes in foreign exchange rates.

• Valuation of foreign currency assets and liabilities.

• Hedging of foreign exchange risk.

• Translation of foreign currency transactions into the functional currency.

A functional currency is defined as:

• The currency of the country in which an entity is incorporated.

• The currency of the country where an entity's principal operations are conducted.

• The currency of the country where an entity's financial statements are presented.

• The currency of the country where an entity's headquarters are located.

The two methods used to translate foreign currency transactions are:

• Temporal method and monetary/non-monetary method.

• Current rate method and historical cost method.

• Spot rate method and forward rate method.

• Monetary method and non-monetary method.

The translation adjustment arising from the translation of foreign operations is:

• Recognized as income or expense in the income statement.

• Recognized as a component of equity.

• Recognized as a liability or asset in the balance sheet.

• Not recognized in the financial statements.

A foreign exchange gain arises when:

• The functional currency strengthens against the foreign currency.

• The functional currency weakens against the foreign currency.

• The spot exchange rate is higher than the forward exchange rate.

• The spot exchange rate is lower than the forward exchange rate.

An entity started trading in the USA. After several years the entity expanded trading in Europe through a subsidiary. The subsidiary is essentially an extension of their own business and the directors of the two entities are the same. The functional currency of the subsidiary is

• The Dollar or the Euro

• The Dollar

• Cannot be determined

• The Euro

An entity has a subsidiary which operates in a country where the exchange rates are volatile and there are wild seasonal variations in costs and revenue. Which rates of exchange may

• Spot rate at year end

• Average rates for each quarter

• Average rates for each month of the year

• Average for the year

Which of the following factors would not be used in determining the functional currency of the entity?

• The currency in which finance is generated

• The currency in which the costs of the entity are mainly denominated

• The currency which is the most internationally used for trading in that industry

• The currency in which sales from operating activities are denominated

A company has a foreign currency receivable. The receivable is denominated in a foreign currency. If the functional currency strengthens against the foreign currency, the company will:

• Increase the receivable balance.

• Recognize a foreign exchange loss.

• Have no impact on its financial statements.

• Recognize a foreign exchange gain.

A company has a foreign currency receivable. The receivable is denominated in a foreign currency. The company hedges the receivable using a forward contract. The forward contract is denominated in the same foreign currency. If the functional currency strengthens against the foreign currency, the company will:

• Recognize a foreign exchange gain on the receivable and a foreign exchange loss on the forward contract.

• Recognize a foreign exchange loss on the receivable and a foreign exchange gain on the forward contract.

• Recognize no foreign exchange gains or losses.

• Increase the receivable balance.