Difference between FX translation and FX revaluation

What is the difference between FX translation and FX revaluation?

Foreign currency translations are first recorded initially in the units of the foreign currency. Foreign currency is a currency other than the functional currency of the entity. Each and every foreign currency translation is revalued in the functional currency based on the official exchange rate at the end of the day. Therefore, for each transaction in foreign currency, there will be a corresponding transaction in the functional currency of the entity. This process is known as effects revaluation. The standard permits the revaluation entries to be passed based on the average rate for a week or a month for all the transactions in foreign currency occurring during that period, provided the exchange rates do not fluctuate significantly, making the use of average rate inappropriate. The monetary items will have to be measured based on the exchange rate on the day of such valuation and this process is known as FX translation. FX translation effectively reduces the currency gains or losses due to fluctuations in exchange rates between the reporting date and the date of recording the original transaction.

Difference between AS 11 and Ind AS 21?

Difference between AS 11 and Ind AS 21? Conceptually, is there any difference between AS 11 and Ind AS 21? In AS 11, there is no concept of functional currency. Foreign currency is a currency other than the reporting currency. Also, there is no concept of presentation currency in AS 11. As …
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Transaction are covered by Ind AS 21

Transaction are covered by Ind AS 21 What type of transaction are covered by Ind AS 21? Accounting for transactions and balances in foreign currenciesTranslating the results and financial position of foreign operations, included in the financial statements of the entity by consolidation or the equity methodTranslating an entity’s results and financial …
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Transaction are outside the scope of Ind AS 21

Transaction are outside the scope of Ind AS 21 What type of transaction are outside the scope of Ind AS 21? Derivative transactions and balances that are within the scope of Ind AS 109 ‘Financial Instruments’.Ind AS 109 applies to many foreign currency derivatives and, accordingly, these are excluded from the scope …
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Importance of functional currency?

Importance of functional currency? What is the importance of functional currency? The determination of functional currency is extremely important as incorrectly determining the same will affect the financial statements in a big way, causing the transactions in the functional currency to be treated as, though they were foreign currency transactions. Exchange differences will …
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Financial statements presented in any currency

Financial statements presented in any currency Can an entity present its financial statements in any currency of its choice? Yes, an entity can present its financial statements in any currency of its choice which is known as presentation currency. Needless to say that these statements would be in addition to the …
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Difference between monetary and non-monetary items

Difference between monetary and non-monetary items What is the difference between monetary and non-monetary items? Monetary items are those assets and liabilities that are cash or readily convertible into cash. However, the essential feature is the existence of a right to receive or obligation to deliver a fixed or determinable number …
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Carrying amount of a monetary item

Carrying amount of a monetary item How is the carrying amount of a monetary item determined on a valuation date for a foreign currency transaction? The carrying amount of an item is determined in conjunction with other relevant Standards. For example, property, plant and equipment may be measured in terms of fair …
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Carrying amount of a non-monetary item

Carrying amount of a non-monetary item How is the carrying amount of a non-monetary item determined on a valuation date for a foreign currency transaction? The carrying amount is determined by comparing the cost or carrying amount, as appropriate, translated at the exchange rate at the date when that amount was …
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Exchange differences on monetary items

Exchange differences on monetary items How are the exchange differences on monetary items dealt with?  Exchange differences arise from: the settlement of monetary items at a subsequent date to initial recognition;remeasuring an entity’s monetary items at rates different from those at which they were initially recorded (either during the reporting period or at …
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Exchange differences from non-monetary items

Exchange differences from non-monetary items How are the exchange differences arising from non-monetary items dealt with? Non-monetary items When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is also recognised in profit or loss.When a gain or loss on …
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Exchange differences from the presentation currency

Exchange differences from the presentation currency How are the exchange differences arising from the presentation currency dealt with? Exchange differences are recognised in other comprehensive income.These exchange differences are not recognised as income or expenses for the period because the changes in exchange rates have little or no direct effect on the …
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