A foreign currency transaction is a transaction denominated in a currency other than an entity’s functional currency. To include a foreign currency transaction in its financial statements, an entity must measure it in its functional currency.
Both a reporting entity and its distinct and separable operations may enter into foreign currency transactions. Foreign currency transactions of a distinct and separable operation should first be measured in its functional currency and then, if the operation is a foreign entity, translated into the reporting currency of its immediate parent. See FX 5 for information on financial statement translation and remeasurement.
When there are foreign currency transactions between members of a consolidated group that result in intercompany balances that are not considered to be of a long-term investment nature, the resulting transaction gain or loss survives consolidation even though the balance sheet accounts eliminate in consolidation. See FX 7 for information on intercompany foreign currency transactions.
This chapter discusses the initial and subsequent measurement of foreign currency transactions.
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