the price of a unit of the domestic currency in
terms of the foreign currency.
Choi/Meek, 6/e
可整理ppt
6
Forward transaction: agreements to exchange a specified amount of one currency for another at a future date.
Choi/Meek, 6/e
可整理ppt
2
How does a translation gain or loss differ from a transactions gain or loss?
Is there more than one way of translating financial statements from one currency to another? If so, what are they?
How does the temporal method of currency translation differ from the current rate method?
What is the relationship between currency
translation and inflation?
Facilitates the measurement of a firm’s exposure to foreign exchange risk.
Choi/Meek, 6/e
可整理ppt
4
Facilitates the recording of foreign currency transactions; i.e., foreign currency sales, purchases, borrowing or lending in the consolidated entity’s reporting currency.
Choi/Meek, 6/e
可整理ppt
8
Functional currency is the primary currency in which the reporting entity transacts business and generates and spends cash; e.g., dollars in the case of a U.S. reporting entity.
Spot transaction: occurs when an enterprise purchases or sells goods for which payment is made in a foreign currency, or when it borrows or lends foreign currency.
Swap transaction: involves the simultaneous spot purchase and forward sale, or spot sale and forward purchase of a currency.
Choi/Meek, 6/e
可整理ppt
7
Accounting for Spot Transactions
International Accounting, 6/e Frederick D.S. Choi Gary K. Meek
Chapter 6:
Foreign Currency Translation
Choi/Meek, 6/e
可整理ppt
1
Learning Objectives
Why do firms translate from one currency to another?
What is the difference between a spot, forward, and swap transaction?
What exchange rates are used in the currency translation process and what are their financial statement effects?
Facilitates reporting domestic accounts to foreign audiences-of-interest.
Choi/Meek, 6/e
可整tion Rates
Spot transactions: the physical exchange of one currency for another in which delivery takes place immediately.
Direct quote: the exchange rate specifies the number of domestic currency units needed to acquire a unit of foreign currency.
Indirect quote: the exchange rate specifies
Choi/Meek, 6/e
可整理ppt
3
Why do Firms Translate?
Facilitates the preparation of consolidated financial statements that allow readers to see the performance of a multinational company’s total operations both domestic and foreign.
At the transaction date, each asset, liability, revenue, and expense denominated in a foreign currency is measured and recorded in the functional currency of the reporting entity at the spot exchange rate in effect on that date.