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Homework answers / question archive / Answer each of the following questions and cite appropriate justification for your answer
Answer each of the following questions and cite appropriate justification for your answer.
1. GAAP requires recognition of gains and losses related to changes in exchange rates subsequent to the rate used in the initial measurement. If exchange rates change subsequent to the date of the financial statements, should the most recent financial statements be restated to reflect the change?
Solution:
Recognition of gains and losses related to operations differs with respect to nature:
a) Integral: In case the entity is an integral entity, the gains and losses arising out of monetary items is to be translated in the books of accounts at the rate as on the closure of the financial statements.
b) Non-integral: The gains and losses arising out of monetary items and non-monetary items is to be translated in the books of accounts at the rate as on the closure of the financial statements. The income and expenditure of non-integral entity is to be restated at an average exchange rate or exch. rate as on the transaction date. Furthermore, the gains and losses are accumulated in the Forex translation reserve.
c) It is not necessary to change the balances/transactions for any exchange rate differences the closure date of the financial statements.
