MPERS vs MFRS : Foreign Currency

In this article, we share the main differences in the accounting requirements for associates under MFRS 121 and Section 30 of MPERS.

01Foreign Currency

Foreign exchange accounting involves the recordation of transactions in currencies other than one’s functional currency.

For example, a business enters into a transaction where it is scheduled to receive a payment from a customer that is denominated in a foreign currency, or to make a payment to a supplier in a foreign currency.

A foreign exchange gain/loss occurs when a company buys and/or sells goods and services in a foreign currency, and that currency fluctuates relative to its home currency. It can create differences in value in the monetary assets and liabilities, which must be recognized periodically until they are ultimately settled.

02Section 30 of MPERS - Foreign Currency

Use the concept of functional currency to measure results and financial position.

The functional currency is not necessary the local currency.

The presentation currency can be in any currency.

No option of using contracted or forward rate for unsettled monetary items.

No option to capitalize on exchange difference in related asset.

The closing rate method is used for all foreign operation.

Goodwill and fair value adjustment must be treated as assets and liabilities of the foreign operation & translated at the closing rate.

03MFRS 121 Foreign Currency

Same as MPERS except for the treatment on disposal of a foreign operation. On disposal of a foreign operation, the entire cumulative exchange reserve is charged to profit and loss.

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