I thought IFRS doesn’t include foreign exchange translation gains/losses to calculate net income and instead includes it as part of equity. However, the answer to this question says the company (IFRS compliant) should disclose amount of foreign exchange differences in net income.
Is the key word here disclose? If so, where would such differences be disclosed?
Here foreign exchange difference refers to purchasing or selling goods to other countries. There may be situations where you sell on credit and only get paid later (receivable). If there’s changes in FX rates between the time of the sell and the time you receive the cash, it will create either a gain or a loss. Disclosures are in the notes.
I think you are mixing this up with the CTA adjustment required by IFRS for currency translation. When you convert a subsidiary’s statement, you may end up with either losses or gains depending on which direction the FX rates moved between each statement period. When converting statements, it will flow through equity using CTA.
Thanks, that makes sense. For question 25 of that same reading, how come Transaction 2 isn’t exposed to a change in exchange rates? The interest on the loan is still to be paid by the subsidiary to the bank in Bindiar Francs, so why should it matter what the presentation currency of the bank is? Over time, Bindiar Francs will fluctuate in value and generate fx rate exposure for the parent company too shouldn’t it?
I think there is not enough information on the loan for it to be the correct answer. The 45 day credit sales gives a strong hint that this is the transaction that is most likely impacted.