FOREX TRANSLATION

ACCOUNTING PROCEDURES

The following steps are usually perform in the translation and consolidation of the foreign
entity financial statements :
1. Receive foreign entity's financial statements, which are reported in foreign currency.
2. Translate the statements in foreign currency to Philippine peso. Each foreign entity account
balance must be individually translated into its Philippine peso equivalent, as follows.
Account in Appropriate Account in Philippine
foreign currency X exchange = peso equivalent value
units rate

3. Consolidate the translated foreign entity's accounts, which are now stated in Philippine
peso, with the Philippine company's accounts.
 KEY DEFINITIONS

• Functional Currency – the currency of the primary economic environment in

which the entity operates.
• Exchange Difference – the difference resulting from translating a given number
of units of one currency into another currency at different exchange rates.
• Foreign Operation – a subsidiary, associate, joint venture, or branch whose
activities are based or conducted in a country or currency other than that of the
reporting entity.
• Closing Rate – the spot exchange rate at the balance sheet date.
• Spot rate – the exchange rate for immediate delivery
• Presentation Currency – the currency that is used to present the financial
statements.
 BASIC STEPS FOR TRANSLATING
FOREIGN CURRENCY AMOUNTS INTO
THE FUNCTIONAL CURRENCY

a) the currency:
a. that mainly influences sales price for goods and services; and
b. of the country who competitive forces and regulations mainly
determine the sales price of the goods and services.
b) the currency that mainly influences labor, materials, and other
cost of providing goods and services will often be the currency
in which sales price for its goods and services are denominated
 STEPS APPLY TO A STAND-ALONE
ENTITY

Steps apply to a stand-alone entity - an entity with foreign

operations (e.g. a parent with foreign subsidiaries), or a foreign
operation (e.g. a foreign subsidiary or branch).
The reporting entity determines its functional currency
The entity translates all foreign currency items into its functional
currency
The entity reports the effects of such translation in accordance
with paragraphs 20-37 and 50 of PAS 21.