CHAPTER 21 - FOREIGN

CURRENCY
TRANSLATIONS
 Foreign Currency Translation

It is used to convert the results of a parent company's

foreign subsidiaries to its reporting currency.

 Conversion
Process of exchanging amounts of one foreign currency for
another.

Translation
It is required at the end of the accounting period when a
company still holds assets or liabilities in its balance sheet which
were obtained or incurred in a foreign currency.
 Presentation Currency
Currency in which the financial statements are presented.

Functional Currency

currency used by a business or unit of a business. It is the

monetary unit of account of the principal economic environment in
which an economic entity operates.
Stand-alone Entity

Group Entity
(a parent and its subsidiaries)
 Parent’s reporting currency
The presentation currency of a foreign operation (subsidiary) of a
Philippine parent company.

Foreign Operation

is an entity that is subsidiary, associate, joint venture, or a

branch of the reporting entity, the activities of which are based or
conducted in a country or currency other than those reporting
entity.
PAS 21

Changes the requirements of the original PAS 21 by not

distinguishing between integral foreign operations and foreign
entities. Instead, all overseas subsidiaries, branches, associates
and joint ventures are now classified as foreign operations.
 Current Rate Method

It is a method of foreign currency translation where most items in the

financial statements are translated at the current exchange rate.

Temporal Method

It is a method of foreign currency translation that uses exchange rates

based on the time assets and liabilities are acquired or incurred to convert
values on the books of an integrated foreign entity into the parent
company's currency.
 Functional Currency is Not the Currency of a Hyperinflationary
Economy

Method
sd 1
Translation into the Presentation Currency (Translation from the
Function Currency to the Presentation Currency)- Current Rate Method.

Method 2

Translation Into the Functional Currency (Remeasurement from a Foreign

Currency to the Functional Currency or known as Temporal Method)
Foreign operation’s functional currency can be one of the following:

 The local currency, that is, the currency of the country

where the subsidiary operates (Local Currency Unit or
LCU);

The parent’s functional currency (peso); or

A currency of a third country.