What does exchange rate difference mean? How to record exchange rate difference in accounting activities in Vietnam?
What does exchange rate mean? What does exchange rate difference mean?
Pursuant to Section 6, Standard No. 10 promulgated and publicized together with Decision 165/2002/QD-BTC:
The terms in this standard are construed as follows:
Overseas activities are branches, subsidiaries, partnerships, joint-venture companies, business cooperation, and business association of the reporting enterprises, which operate in countries other than Vietnam.
Foreign-based establishments means activities in foreign countries, which operate independently from the reporting enterprises.
Accounting currency is a currency officially used in the making of accounting entries and financial statements.
Foreign currency is a currency other than the accounting currency of an enterprise.
Exchange rate is the rate of exchange between two currencies.
Exchange rate difference is the difference arising from the actual exchange or conversion of the same amount of a foreign currency into the accounting currency at different exchange rates.
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Thus, exchange rate is the rate of exchange between two currencies.
Exchange rate difference is the difference arising from the actual exchange or conversion of the same amount of a foreign currency into the accounting currency at different exchange rates.
What does exchange rate difference mean? How to record exchange rate difference in accounting activities in Vietnam? (Image from the Internet)
How to record exchange rate difference in accounting activities in Vietnam?
Pursuant to Section 12, Standard No. 10 promulgated and publicized together with Decision 165/2002/QD-BTC on record of exchange rate difference in accounting activities. To be specific:
The exchange rate difference that arises upon the settlement of monetary items of foreign currency origin or as a result of the reporting on monetary items of foreign currency origin by an enterprise using exchange rates different from the exchange rate initially recognized or already reported in the previous financial statements, shall be handled as follows:
- At the construction investment stage to form fixed assets of newly established enterprises, the exchange rate difference arising upon settlement of monetary items of foreign currency origin for making construction investment and the exchange rate difference arising upon re-valuation of monetary items of foreign currency origin at the end of the fiscal year will be reflected accumulatively and separately on the balance sheets.
When completely constructed fixed assets are put into use, the exchange rate arising at the construction investment stage will be amortized into income or production and business costs over the maximum period of five years.
- At the stage of production and business, including the construction investment to form fixed assets of the operating enterprises, the exchange rate difference arising upon settlement of monetary items of foreign currency origin and re-valuation of currency of foreign currency origin at the end of the fiscal year shall be recognized as income or costs in the fiscal year, except for the exchange rate difference prescribed in paragraphs 12c, 14 and 16.
- For enterprises using financial instruments for exchange rate risk reserve, all loans and liabilities of foreign currency origin shall be accounted according to the actual exchange rate at the time they occur. Enterprises must not re-valuate loans and liabilities of foreign currency origin for which they have used financial instruments for exchange rate risk reserve.
When will the exchange rate differences be accounted in accounting activities in Vietnam?
Pursuant to Section 13, Standard No. 10 promulgated and publicized together with Decision 165/2002/QD-BTC:
13. The arising exchange rate difference shall be recognized when the exchange rate changes between the transaction date and the date of settlement for all monetary items of foreign currency origin. When transactions occur and are settled in the same accounting period, exchange rate differences will be accounted in such period. If transactions are settled in subsequent accounting periods, exchange rate differences will be calculated on the basis of the change in the foreign exchange rate in each period till the period during which such transactions are settled.
The arising exchange rate difference shall be recognized when the exchange rate changes between the transaction date and the date of settlement for all monetary items of foreign currency origin.
When transactions occur and are settled in the same accounting period, exchange rate differences will be accounted in such period.
If transactions are settled in subsequent accounting periods, exchange rate differences will be calculated on the basis of the change in the foreign exchange rate in each period till the period during which such transactions are settled.
Some notes when applying STANDARD NO. 10: EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES promulgated and publicized together with Decision 165/2002/QD-BTC:
(1) This standard applies to:
- The accounting of foreign currency transactions;
- The conversion of the financial statements of overseas activities for inclusion of these statements in the financial statements of the enterprises by the inclusion or owners’ equity method.
(2) Enterprises must use Vietnam dong as an accounting currency, unless they are permitted to use another common currency
(3) This standard does not prescribe the conversion of an enterprise’ financial statements from an accounting currency into another so as to facilitate the users that have been accustomed to the such converted currency or for similar purposes
(4) This standard does not mention the presentation of cash flows arising from foreign currency transactions and from the conversion of cash flow statements of an overseas activity in the cash flow statements (prescribed in the standard "Cash flow statements").
Download STANDARD NO. 10: EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
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