Foreign Currency Transactions, ASC 830

Foreign Currency Transactions

SFAS 52, December 1981
“Foreign Currency Translation”

Foreign currency transactions
Foreign currency transaction
–> transactions denominated in the currency other than functional currency

Recognition of foreign currency transactions
Foreign currency transactions are recorded
–> in functional currency
–> using the exchange rate at the transaction date

Foreign currency transaction gains and losses
1. Gains and losses due to the changes in exchange rates between (A) and (B)
(A) transaction date
(B) settlement date

An example
1. US dollar is functional currency
Transaction is denominated in Euro

2. November 1, 20×1 when €1 = $ 1.40
Sold 200 units of products at €10 per unit.

Accounts receivable             $2,800
Sales                                           $2,800

3. December 15, 20×1 when €1 = $ 1.45
Collected €2000

Cash                                  $2,900
Accounts receivable                        $2,800
Foreign currency transaction gain         $100

Foreign currency transaction gains and losses are
–> recognized in income
–> except for the cases listed in (C), (D) and (E)

(C) foreign currency transactions
–> designated as hedges of a net investment in foreign operations
–> gains and losses are reported in other comprehensive income (OCI)

(D) intra-entity foreign currency transactions
–> with long-term investment nature
–> such transactions are considered as part of the net investment

(E) changes in fair value of available for sale debt securities
–> in foreign currency are
–> reported in other comprehensive income (OCI)