Consolidating balance sheet foreign currency
A part of machine’s cost is your prepayment paid after contract’s signature.
Similarly, it is necessary to assess whether you should recognize some financial liability or not.In most cases, prepayments made for the acquisition of fixed assets or any goods / services in general are rarely refundable, or the probability is very low.Therefore, your and as a result, you should NOT recalculate it using the closing rate at the year-end.With regard to subsequent translation at the closing rate, IAS 21 makes a difference between monetary items and non-monetary items: Prepayments as such may or may not carry this feature and you should assess each prepayment individually and carefully. Is your prepayment refundable and at what conditions?If there’s a clause of refunding you the deposit – what is the probability of a refund?The relevant dates and exchange rates are as follows: What’s your own accounting practice related to deposits, prepayments or advances in foreign currencies? Please, let me know in a comment below the article and if you know someone who can use this information, please share – thank you!
Update 05 February 2015: There was a great discussion on Linked In in relation to this topic.
We are all aware of basic rules with regard to selection of appropriate exchange rate to apply.
If you would like to refresh a bit, you can sneak in my lesson from the IFRS In 1 Day dedicated to foreign currencies here.
Therefore, you do not recalculate anything and your entry is: Now you may argue – but, the date when a machine appears in your financial statements is on delivery, so we should recalculate the full amount of USD 100 000 with the rate applicable on delivery.
Some companies apply this treatment, but it’s not really correct and presenting true and fair view of the transaction.
The following example will show you how to account for a prepayment for the acquisition of a machine if it’s classified as non-monetary asset.