BV2018 - MFRS 121
BV2018 - MFRS 121
BV2018 - MFRS 121
MFRS 121
About IAS 21
In April 2001 the IASB adopted IAS 21 The Effects of Changes in Foreign
Exchange Rates, which had originally been issued by the International Accounting
Standards Committee in December 1983. IAS 21 The Effects of Changes in
Foreign Exchange Rates replaced IAS 21 Accounting for the Effects of Changes in
Foreign Exchange Rates (issued in July 1983).
In December 2003 the IASB issued a revised IAS 21 as part of its initial agenda of
technical projects. The revised IAS 21 also incorporated the guidance contained in
three related Interpretations (SIC-11 Foreign Exchange—Capitalisation of Losses
Resulting from Severe Currency Devaluations, SIC-19 Reporting Currency—
Measurement and Presentation of Financial Statements under IAS 21 and IAS 29
and SIC-30 Reporting Currency—Translation from Measurement Currency to
Presentation Currency). The IASB also amended SIC-7 Introduction of the Euro.
The IASB amended IAS 21 in December 2005 to require that some types of
exchange differences arising from a monetary item should be separately recognised
as equity.
Other Standards have made minor consequential amendments to IAS 21. They
include Improvements to IFRSs (issued May 2010), IFRS 10 Consolidated
Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May
2011), IFRS 13 Fair Value Measurement (issued May 2011), Presentation of Items
of Other Comprehensive Income (Amendments to IAS 1) (issued June 2011),
IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9,
IFRS 7 and IAS 39) (issued November 2013), IFRS 9 Financial Instruments
(issued July 2014) and IFRS 16 Leases (issued January 2016).
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CONTENTS from
paragraph
Preface
MALAYSIAN FINANCIAL REPORTING STANDARD 121
THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE
RATES
OBJECTIVE 1
SCOPE 3
DEFINITIONS 8
Elaboration on the definitions 9
SUMMARY OF THE APPROACH REQUIRED BY THIS
STANDARD 17
REPORTING FOREIGN CURRENCY TRANSACTIONS IN THE
FUNCTIONAL CURRENCY 20
Initial recognition 20
Reporting at the ends of subsequent reporting periods 23
Recognition of exchange differences 27
Change in functional currency 35
USE OF A PRESENTATION CURRENCY OTHER THAN THE
FUNCTIONAL CURRENCY 38
Translation to the presentation currency 38
Translation of a foreign operation 44
Disposal or partial disposal of a foreign operation 48
TAX EFFECTS OF ALL EXCHANGE DIFFERENCES 50
DISCLOSURE 51
EFFECTIVE DATE AND TRANSITION 58
WITHDRAWAL OF OTHER PRONOUNCEMENTS 61
APPENDIX
Amendments to other pronouncements
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Preface
The MASB is implementing its policy of convergence through adopting International
Financial Reporting Standards (IFRSs) as issued by the IASB for application for annual
periods beginning on or after 1 January 2012. The IASB defines IFRSs as comprising:
(a) International Financial Reporting Standards;
(b) International Accounting Standards;
(c) IFRIC Interpretations; and
(d) SIC Interpretations.
MFRSs equivalent to IFRSs that apply to any reporting period beginning on or after
1 January 2012 are:
(a) Malaysian Financial Reporting Standards; and
(b) IC Interpretations.
Application of this Standard will begin in the first-time adopter’s* first MFRS financial
statements* in the context of adopting MFRSs equivalent to IFRSs. In this case, the
requirements of MFRS 1 First-time Adoption of Malaysian Financial Reporting
Standards must be observed. Application of MFRS 1 is necessary as otherwise such
financial statements will not be able to assert compliance with IFRS.
MFRS 121 is equivalent to IAS 21 The Effects of Changes in Foreign Exchange Rates
as issued and amended by the IASB, including the effective and issuance dates. Entities
that comply with MFRS 121 will simultaneously be in compliance with IAS 21.
* Appendix A of MFRS 1 defines first-time adopter and first MFRS financial statements.
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2 The principal issues are which exchange rate(s) to use and how to report the
effects of changes in exchange rates in the financial statements.
Scope
3 This Standard shall be applied:1
(a) in accounting for transactions and balances in foreign
currencies, except for those derivative transactions and
balances that are within the scope of MFRS 9 Financial
Instruments;
(b) in translating the results and financial position of foreign
operations that are included in the financial statements of the
entity by consolidation or the equity method; and
(c) in translating an entity’s results and financial position into a
presentation currency.
5 This Standard does not apply to hedge accounting for foreign currency items,
including the hedging of a net investment in a foreign operation. MFRS 9
applies to hedge accounting.
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7 This Standard does not apply to the presentation in a statement of cash flows
of the cash flows arising from transactions in a foreign currency, or to the
translation of cash flows of a foreign operation (see MFRS 107 Statement of
Cash Flows).
Definitions
8 The following terms are used in this Standard with the meanings
specified:
Closing rate is the spot exchange rate at the end of the reporting period.
Exchange difference is the difference resulting from translating a given
number of units of one currency into another currency at different
exchange rates.
Exchange rate is the ratio of exchange for two currencies.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date. (See MFRS 13 Fair Value Measurement.)
Foreign currency is a currency other than the functional currency of the
entity.
Foreign operation is an entity that is a subsidiary, associate, joint
arrangement or branch of a reporting entity, the activities of which are
based or conducted in a country or currency other than those of the
reporting entity.
Functional currency is the currency of the primary economic
environment in which the entity operates.
A group is a parent and all its subsidiaries.
Monetary items are units of currency held and assets and liabilities to be
received or paid in a fixed or determinable number of units of currency.
Net investment in a foreign operation is the amount of the reporting
entity’s interest in the net assets of that operation.
Presentation currency is the currency in which the financial statements
are presented.
Spot exchange rate is the exchange rate for immediate delivery.
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(i) that mainly influences sales prices for goods and services
(this will often be the currency in which sales prices for
its goods and services are denominated and settled); and
(ii) of the country whose competitive forces and regulations
mainly determine the sales prices of its goods and
services.
(b) the currency that mainly influences labour, material and other costs
of providing goods or services (this will often be the currency in
which such costs are denominated and settled).
12 When the above indicators are mixed and the functional currency is not
obvious, management uses its judgement to determine the functional
currency that most faithfully represents the economic effects of the
underlying transactions, events and conditions. As part of this approach,
management gives priority to the primary indicators in paragraph 9 before
considering the indicators in paragraphs 10 and 11, which are designed to
provide additional supporting evidence to determine an entity’s functional
currency.
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15A The entity that has a monetary item receivable from or payable to a foreign
operation described in paragraph 15 may be any subsidiary of the group. For
example, an entity has two subsidiaries, A and B. Subsidiary B is a foreign
operation. Subsidiary A grants a loan to Subsidiary B. Subsidiary A’s loan
receivable from Subsidiary B would be part of the entity’s net investment in
Subsidiary B if settlement of the loan is neither planned nor likely to occur in
the foreseeable future. This would also be true if Subsidiary A were itself a
foreign operation.
Monetary items
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22 The date of a transaction is the date on which the transaction first qualifies
for recognition in accordance with MFRSs. For practical reasons, a rate that
approximates the actual rate at the date of the transaction is often used, for
example, an average rate for a week or a month might be used for all
transactions in each foreign currency occurring during that period. However,
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if exchange rates fluctuate significantly, the use of the average rate for a
period is inappropriate.
26 When several exchange rates are available, the rate used is that at which the
future cash flows represented by the transaction or balance could have been
settled if those cash flows had occurred at the measurement date. If
exchangeability between two currencies is temporarily lacking, the rate used
is the first subsequent rate at which exchanges could be made.
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29 When monetary items arise from a foreign currency transaction and there is
a change in the exchange rate between the transaction date and the date of
settlement, an exchange difference results. When the transaction is settled
within the same accounting period as that in which it occurred, all the
exchange difference is recognised in that period. However, when the
transaction is settled in a subsequent accounting period, the exchange
difference recognised in each period up to the date of settlement is determined
by the change in exchange rates during each period.
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34 When an entity keeps its books and records in a currency other than its
functional currency, at the time the entity prepares its financial statements all
amounts are translated into the functional currency in accordance with
paragraphs 20–26. This produces the same amounts in the functional currency
as would have occurred had the items been recorded initially in the functional
currency. For example, monetary items are translated into the functional
currency using the closing rate, and non-monetary items that are measured on
a historical cost basis are translated using the exchange rate at the date of the
transaction that resulted in their recognition.
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40 For practical reasons, a rate that approximates the exchange rates at the dates
of the transactions, for example an average rate for the period, is often used
to translate income and expense items. However, if exchange rates fluctuate
significantly, the use of the average rate for a period is inappropriate.
These exchange differences are not recognised in profit or loss because the
changes in exchange rates have little or no direct effect on the present and
future cash flows from operations. The cumulative amount of the exchange
differences is presented in a separate component of equity until disposal of
the foreign operation. When the exchange differences relate to a foreign
operation that is consolidated but not wholly-owned, accumulated exchange
differences arising from translation and attributable to non-controlling
interests are allocated to, and recognised as part of, non-controlling interests
in the consolidated statement of financial position.
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(a) all amounts (ie assets, liabilities, equity items, income and
expenses, including comparatives) shall be translated at the
closing rate at the date of the most recent statement of financial
position, except that
(b) when amounts are translated into the currency of a non-
hyperinflationary economy, comparative amounts shall be
those that were presented as current year amounts in the
relevant prior year financial statements (ie not adjusted for
subsequent changes in the price level or subsequent changes in
exchange rates).
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the foreign operation are translated at the exchange rate at the end of the
reporting period of the foreign operation. Adjustments are made for
significant changes in exchange rates up to the end of the reporting period of
the reporting entity in accordance with MFRS 10. The same approach is used
in applying the equity method to associates and joint ventures in accordance
with MFRS 128 (as amended in 2011).
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Disclosure
51 In paragraphs 53 and 55–57 references to ‘functional currency’ apply,
in the case of a group, to the functional currency of the parent.
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60 All other changes resulting from the application of this Standard shall be
accounted for in accordance with the requirements of MFRS 108 Accounting
Policies, Changes in Accounting Estimates and Errors.
60A MFRS 101 (IAS 1 as revised by IASB in 2007) amended the terminology
used throughout MFRSs. In addition it amended paragraphs 27, 30–33, 37,
39, 41, 45, 48 and 52. An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009. If an entity applies MFRS 101
(IAS 1 revised by IASB in 2007) for an earlier period, the amendments shall
be applied for that earlier period.
60B MFRS 127 (IAS 27 as amended by IASB in 2008) added paragraphs 48A–
48D and amended paragraph 49. An entity shall apply those amendments
prospectively for annual periods beginning on or after 1 July 2009. If an entity
applies MFRS 127 (IAS 27 amended by IASB in 2008) for an earlier period,
the amendments shall be applied for that earlier period.
60F MFRS 10 and MFRS 11 Joint Arrangements (IFRS 10 and IFRS 11 Joint
Arrangements issued by IASB in May 2011) amended paragraphs 3(b), 8, 11,
18, 19, 33, 44–46 and 48A. An entity shall apply those amendments when it
applies MFRS 10 and MFRS 11.
60G MFRS 13 (IFRS 13 Fair Value Measurement issued by IASB in May 2011)
amended the definition of fair value in paragraph 8 and amended
paragraph 23. An entity shall apply those amendments when it applies
MFRS 13.
60K MFRS 16 Leases (IFRS 16 Leases issued by IASB in January 2016) amended
paragraph 16. An entity shall apply that amendment when it applies
MFRS 16.
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62 [Deleted by MASB]
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Appendix
Amendments to other pronouncements
The amendments contained in this appendix have been incorporated into the relevant
pronouncements published in this volume.
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Paragraph 61
This Standard supersedes IAS 21 The Effects of Changes in Foreign Exchange Rates
(revised in 1993).
Paragraph 62
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