Chapter 16

THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES


Sec. 1. Scope. This Chapter covers the definition, recognition and measurement, presentation and related disclosure requirement in accordance with PPSAS 4 on The Effects of Changes in Foreign Exchange Rates.

Sec. 2. Definition of Terms. For the purpose of this Manual, the subsequent terms below shall be construed to denote as follows:

a. Closing rate - the spot exchange rate at the reporting date.

b. Exchange difference - the difference resulting from translating a given number of units of one currency into another currency at different exchange rates. (Par. 10 PPSAS 4)

c. Exchange Rate - the ratio of exchange for two currencies. (Par. 10 PPSAS 4)

d. Foreign Currency - the currency other than the functional currency of the entity. (Par. 10 PPSAS 4)

e. Foreign Currency Transactions - are transactions that are denominated and require settlement in foreign currency.

f. Functional Currency - the currency of the primary economic environment in which the entity operates. (Par. 10 PPSAS 4)

g. Monetary items - they are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency. (Par. 10 PPSAS 4) (examples are pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; and cash dividends that are recognized as a liability)

h. Non-Monetary items - items which essential feature is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. (examples are amounts prepaid for goods and services; goodwill; intangible assets; inventories; property, plant and equipment; and provisions to be settled through delivery of a non-monetary item) (Par. 17 PPSAS 4)

i. Spot exchange rate - the exchange rate for immediate delivery. (Par. 10 PPSAS 4)



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