Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

ACCOUNTING ENTRIES IN FUNCTIONAL CURRENCY

The following are the FX revaluation entries in the functional currency converted at the respective FX rate, which is given in the illustration. FX translation entries are clearly specified, indicating whether each is a consummated FX translation entry or a transient FX translation entry.

F-1 On introducing cash into the fund: (T-1 @ FX Rate: 1.30000)

F-2 On purchase of Bonds—FVPL: (T-2 @ FX Rate: 1.34653)

F-3 On recording accrued interest purchased on purchase of Bond: (T-3 @ FX Rate: 1.34653)

F-4 On payment of contracted sum: (T-4 @ FX Rate: 1.34400)

F-5 FX Translation on payment to broker: (Consummated FX translation entry)

The settlement amount when converted into US$ based on the FX rate on the date of settlement results in a different amount than the contracted amount in US$ terms. This represents the currency gain or loss and is taken directly to the profit and loss account. If this FX translation entry is not passed, then the liability of the broker will continue to have a balance even though the broker is settled in full in the respective ...