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Accruals and Provisions in foreign currency
03-25-2009, 08:27 AM
Post: #1
Accruals and Provisions in foreign currency
my question is whether accruals, such as accrued bonus, accrued annual leaves etc or provisions, such as provision created in anticipation of penalty or lawsuit, if these amounts are calculated in foreign currency during the year, using transaction rate at the date of booking the said accrual/provision, should it be translated at the year end spot rate?

are these monetary items liable to be translated at year end spot rate or not??

as i read in ias 21, provisions settled in cash are categorized as monetary items.

please explain whether these two items should be translated or not

1- provision for penalty US$ 100(estimated amoount payable in 2009) booked in June 2008 @ Rs.60 = Rs. 6,000 if closing spot rate is 80..

then at year end will it be shown in books at 6000 or 8000?
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03-26-2009, 12:09 AM
Post: #2
 
Dear,

All monetary items have to translated at the spot rate of balance sheet date. Accordingly the provisions/liabilities you have mentioned would be translated at balance sheet date's spot rate and difference will be taken to gain or loss on foreign currency translation account.


Regards,


KAMRAN.
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03-27-2009, 11:33 PM
Post: #3
 
are these monetary items???

because if the amount is based on an estimate then do these classify as monetary items?? i thought that only those items are monetary items which have a fixed amount of cash outflow........
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03-28-2009, 08:20 PM
Post: #4
 
Dear

Provisions are monetary items since these represent legal or constructive obligation that is probable at the balance sheet and the estimate of which can be made RELIABLY.

Regards,


KAMRAN.
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