Advanced Financial Accounting Report

This report explores the impact of foreign exchange rate changes on monetary and non-monetary items in financial accounting. It examines the accounting treatment of foreign currency monetary items and qualifying monetary items under AASB 121. The report also discusses the reversal of gains recognized on asset sales within a consolidated group, highlighting the importance of impairment considerations and the impact on consolidated financial statements.

Advanced Financial
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
Q1) Effect of foreign exchange rate using AASB 121....................................................................3
a. Difference between monetary item and non-monetary items.................................................3
b. Accounting treatment of foreign currency monetary items at reporting date.........................4
c. Accounting treatment for qualifying monetary item...............................................................5
Q2) Gains recognised on sales of assets are reversed on consolidation..........................................6
CONCLUSION ..............................................................................................................................7
REFERENCERS..............................................................................................................................1

INTRODUCTION
A part of Accounting that record, summaries and treats money as a means of comparing
and measuring economic performance rather of as a component of production is known as
financial accounting (What is financial accounting, 2018). It is related to the process of preparing
financial statements that companies use to show their financial position and performance to
outside shareholder and other people. The international accounting standard board (IASB)
develop important standard which are followed for financial reporting.
In this project report, with effect of change in foreign exchange rate the difference
between monetary and non-monetary item, treatment of foreign currency monetary item and
treatment of qualifying monetary item is discussed. The adjustment that may need to be made in
relation to an asset sold within the consolidated group is described.
Q1) Effect of foreign exchange rate using AASB 121.
The Australian accounting standard board has develop accounting standard AASB 121
which is “The effect of change in Foreign exchange Rate” under Section 334 of the companies
Act 2001 on 15 July 2004. The main two objective of this Act is, companies may have dealing of
operation in foreign currencies and entity may present its financial statements in foreign
currency.
a. Difference between monetary item and non-monetary items.
Monetary items Non-monetary items
These are assets and liabilities that express a
particular amount of currency to be convertible
at a particular period of time. Monetary assets
such as cash, trader and monetary liabilities
like account payable etc. that has a fixed
exchange value which is not effected by
inflation and deflation (Christian, Silvana and
Alessandra, 2013).
The primary attribute of these monetary item is
These items are refer to those assets and
liabilities whose price might changes in term of
dollar over a period of time. For example raw
material, property etc. and liabilities warranties
payable income tax credits etc.
The essential feature of non-monetary item is
the absences of a right to obtain or duty to

a right to acquire or duty to deliver a fixed
number of units of currency.
According, to AASB 121, it is a contract to
receive a variable amount of firm equity or
variable amount of assets similar to the fair
value to be received or delivered that is exact
to the amount of unit of currency is a monetary
item.
For Example,
 Pension and other employee benefits
are to be paid in cash after the standard
of AASB 121. Earlier is was also paid
in non-monetary item also.
 Cash dividend are now recognised as a
liability (Hope, Thomas and Vyas, 2013).
deliver determinable figure of unit of amount.
Similarly, it is the absence in contract of
receiving a variable amount of firm liabilities
equal to the true value which is received or
delivered to the same amount of unit of
currency is non-monetary item (Cooper, C.,
2015).
For example,
 Amount prepaid for various goods and
services such as a building prepaid rent.
Intangible assets like goodwill,
inventories etc.
 According to AASB 121 different
provision that are now settled by the
delivery of non-monetary assets which
were earlier only setted by monetary
assets.
b. Accounting treatment of foreign currency monetary items at reporting date.
The date of dealing is the period at which the transaction first label for identification in
accordance with AASB. Monetary item are consider to be the unit of currency held and the
values of assets and liabilities to be received and paid in a fixed or number of portion of
monetary system. So at the end of reporting period if reporting entity has foreign currency
monetary item that shall be treated or translated by using the closing rate. It is the method which
is related to restating the amount in monetary item in balance sheet in another currency using the
closing rate of foreign exchange for all entity assets and liabilities. It may also defined as the
exchange rate of two or more currencies at the end of business of a balance sheet date for
example at the close of accounting year (Levant, and Nikitin, 2012). The current or closing rate
method is different from the temporary method which shows that assets and possession are
converted at actual conversion rate as opposed to existent ones. This could create a high amount

of translation risk, so to smooth this excitability income and losses are recorded on a propriety
account rather of the combination net income account. This closing rate method is more helpful
for management, shareholder and other creditor to evaluate and calculate performance of entity.
As profits and losses are subsequent from currency rendering are executed from the accounting
of consolidated earning. In Addition, at end of financial year each balance sheet the amount of
foreign currency monetary items are to be recorded at closing rate.
For example, if firm record plant and liability equal to $9m at particular date, at the end
of accounting year if amount is not paid. So, by using closing rate of exchange, the amount
which is to be paid would by retranslated at $12m which result in exchange loss of $3m in profit
and loss statements. But the assets remain at $9before reduction value.
c. Accounting treatment for qualifying monetary item.
Accounting board of Australia applies to hedge accounting for monetary item which
means that an organisation may gas to account for some exchange differences from the
treatment of exchange required by the standard. The accounting treatment for monetary item are
some different with other foreign currency monetary items. As, exchange difference arising on
the settlement or translating of these items at the rate that is different from the rate which were
translated by companies on the initial recognition during an accounting period. That must be
from previous annual financial report and statements and shall be constituted in profit or loss in
the period they happen (Maynard, 2017). Except one treatment, in which exchange difference
originate of monetary items that are part of the coverage firm's final investments in a foreign
activity are constituted. Which are recorded in the consolidation financial statements that
includes the operation in comprehensive income and they are reconsigned in the profit and loss
on disposition of of actual investments. Using AASB 21 qualifying monetary item shall be
reported initially at the rate of exchange at the date of transaction that means use of mean is
permitted if these item are reasonable.
In contrast a monetary item are part of an organisation investments in a foreign operation,
that is the accounting treatment in combine financial statements which are not be totally really on
the currency of the monetary items. So, at the option of any organisation conversation difference
arise on reporting of long term foreign currency monetary item at different rates at which they
were reported in the previous financial statements. If monetary item comes from currency
dealing in foreign and if the exchange rate are different between the transaction date and

settlement date there is a result of exchange. As they relates to the transferred of depreciated
assets over the total life, capital assets and that must be added or passage from the cost of the
assets that shall be congregate in a “qualifying foreign monetary system and item rendering
deviation sum” in the final statements.
Q2) Gains recognised on sales of assets are reversed on consolidation.
When one entity transfer balance within more than one general ledger to many to
consolidate financial information for an organisation. The following points to be consider on the
consolidated of company such as periodically transfer balance from the relevant companies to
the selected consolidation company (Meyer and Meyer, 2014). Then to preserve the manual entries
for the consolidated entity should be define as a separate general ledger company for the hand-
operated entries. In case if the company base currencies are different than the account sum
should be translated to the selected consolidate entity base by using the translation rate in the
accounting year. The process f consolidate result in the transition for balance sheet, income
statement and a translating balance of income and loss at the end account period if the base
currencies are differ and the translated amount are not equal to zero. These all transaction are
reversed in the next period when the closing is a part of consolidation company.
So the gains that are recognised at the sales of financial assets between companies within
the same group are reversed at the time of consolidation because recovery of any constituted
modification losses for an assets in an interest documents that classify as a financial assets
accessible for the sale as these are not part of consolidated income statements. It is observed that
financial assets are consider to be vitiated that should carry amount in adjusted to show the event
of impairment. It has the neutral grounds for that events that have occurred in the consolidation
of financial statements:
 If the debt instruments have harmful impact on the coming cash flows which are
recognised at the time of dealing were reformed (Mortensen, Fisher and Wines, 2012). So they
must be impaired when there are reasonable uncertainty and detail information for
recovery of balance or the affiliated interest that will be gathered for the actual amount
and on the day of at first accept.
 In case of equity instruments, it means that there impairment must carry amount that
might not be fully recovered.

In Addition the forwarded measure of these business assets is than focused with the
change to the compact outgo theme for the period in which the damage of fixed assets become
common in respect to the international Accounting standard board. From the consolidation of
statements with the same group the recoveries of the early alteration of losses that are reflected in
the statements. If exactly grouped in the financial income authorities for an accounting year in
which the impairment is turned or decreased. It also has one exception that is if there is any
recovery of last constituted modification losses accurate on the investment in an equity share that
are classified as a part of financial assets those were available for sale but are not recognised in
the consolidation annual income report and statements. These are impairment are recoded under
the direction of valuation of adjustments further sub divided as availability for sales of financial
assets in the combined balance sheet within different groups (Vogel, 2014).
The other adjustments that are needed to be made in relation to an assets sold within the
consolidation group. In contrast, the consolidation of assets are more complicated process as a
total acquisition price is calculated depending upon the fair value that were covered by the
groups in order to gain control. Fair values are constituted and filmed for every assets for the
companies within the same group that were acquiring them individually. In addition if the
acquisition rates are much higher than the total true values of all identified and compared assets
than intangible assets are being reported for the actual differences. It can be said that as a going
concern if total value are usually attributed to a company that must goes over the values of
individual of their assets.
CONCLUSION
In this project report, it has been concluded that financial accounting is a wide filed of
accounting that deals with monetary term in order to calculate and compare financial position of
company. The primary aim of project is to construct the importance of financial accounting with
standard using Australian accounting standard board 121, it shows the treatment of monetary and
non-monetary item after the effect of change in foreign exchange rate. The project shows the
adjustment of gain recognised on sales of assets between companies within same group that is
reversed at the time of consolidation.

REFERENCERS
Book and Journals:
1