Foreign currency rates to use when they are not available
We are a trading company and our functional currency is EUR. Occasionally we trade with countries whose currencies do not have a daily quote of exchange rate due to low exchangeability.
What closing exchange rates shall we apply?
The standard IAS 21 paragraph 26 prescribes using the first subsequent rates at which exchanges could be made for translations of amounts denominated in currencies where exchangeability is temporarily lacking.
ABC’s functional currency is EUR. As at the end of 31 December 20X1, it had a receivable of UAH 30 000 to one of its Ukrainian customers and a payable of MDL 15 000 to the supplier from Moldova.
Due to low exchangeability of Ukrainian hryvnia and Moldovan leu the closing exchange rates at 31 December 20X1 were not available. The closest exchange rates were:
- 27,224 UAH/EUR at 1 December 20X1;
- 28,369 UAH/EUR at 2 January 20X2.
- 21,512 MDL/EUR at 1 December 20X1;
- 20,825 MDL/EUR at 2 January 20X2.
ABC needs to apply the first subsequent rates at which exchanges could be made.
- The receivable of UAH 30 000 is translated at the rate of 28.369 UAH/EUR as of 2 January 20X2. The receivable amounts to EUR 1 057.49 EUR.
- The payable of MDL 15 000 is translated at the rate of 20.825 MDL/EUR as of 2 January 20X2. The payable amounts to EUR 720.29.
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