These Illustrative Examples accompany, but are not part of, IFRIC 22. In these Illustrative Examples, foreign currency amounts are ‘Foreign Currency’ (FC) and functional currency amounts are ‘Local Currency’ (LC).
IE1 | The objective of these examples is to illustrate how an entity determines the date of the transaction when it recognises a non‑monetary asset or non‑monetary liability arising from advance consideration in a foreign currency before it recognises the related asset, expense or income (or part of it) applying relevant IFRS Standards. |
IE2 | On 1 March 20X1, Entity A entered into a contract with a supplier to purchase a machine for use in its business. Under the terms of the contract, Entity A pays the supplier a fixed purchase price of FC1,000 on 1 April 20X1. On 15 April 20X1, Entity A takes delivery of the machine. |
IE3 | Entity A initially recognises a non-monetary asset translating FC1,000 into its functional currency at the spot exchange rate between the functional currency and the foreign currency on 1 April 20X1. Applying paragraph 23(b) of IAS 21 The Effects of Changes in Foreign Exchange Rates, Entity A does not update the translated amount of that non‑monetary asset. |
IE4 | On 15 April 20X1, Entity A takes delivery of the machine. Entity A derecognises the non-monetary asset and recognises the machine as property, plant and equipment applying IAS 16 Property, Plant and Equipment. On initial recognition of the machine, Entity A recognises the cost of the machine using the exchange rate at the date of the transaction, which is 1 April 20X1 (the date of initial recognition of the non-monetary asset). |
IE5 | On 1 June 20X2, Entity B entered into a contract with a customer to deliver goods on 1 September 20X2. The total fixed contract price is an amount of FC100, of which FC40 is due and received on 1 August 20X2 and the balance is receivable on 30 September 20X2. |
IE6 | Entity B initially recognises a non-monetary contract liability translating FC40 into its functional currency at the spot exchange rate between the functional currency and the foreign currency on 1 August 20X2. Applying paragraph 23(b) of IAS 21, Entity B does not update the translated amount of that non-monetary liability. |
IE7 | Applying paragraph 31 of IFRS 15 Revenue from Contracts with Customers, Entity B recognises revenue on 1 September 20X2, the date on which it transfers the goods to the customer. |
IE8 | Entity B determines that the date of the transaction for the revenue relating to the advance consideration of FC40 is 1 August 20X2. Applying paragraph 22 of IAS 21, Entity B determines that the date of the transaction for the remainder of the revenue is 1 September 20X2. |
IE9 | On 1 September 20X2, Entity B:
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IE10 | The receivable of FC60 recognised on 1 September 20X2 is a monetary item. Entity B updates the translated amount of the receivable until the receivable is settled. |
IE11 | On 1 May 20X3, Entity C entered into a contract with a supplier for services. The supplier will provide the services to Entity C evenly over the period from 1 July 20X3 to 31 December 20X3. The contract requires Entity C to pay the supplier FC200 on 15 June 20X3 and FC400 on 31 December 20X3. Entity C has determined that, for this contract, the payment of FC200 on 15 June 20X3 relates to the services to be received in the period 1 July–31 August 20X3, and the payment of FC400 on 31 December 20X3 relates to the services to be received in the period 1 September–31 December 20X3. |
IE12 | Entity C initially recognises a non-monetary asset translating FC200 into its functional currency at the spot exchange rate between the functional currency and the foreign currency on 15 June 20X3. |
IE13 | In the period 1 July–31 August 20X3, Entity C derecognises the non-monetary asset and recognises an expense of FC200 in profit or loss as it receives the services from the supplier. Entity C determines that the date of the transaction for the expense related to the advance consideration of FC200 is 15 June 20X3 (the date of initial recognition of the non-monetary asset). |
IE14 | In the period 1 September–31 December 20X3, Entity C initially recognises the expense in profit or loss as it receives the services from the supplier. In principle, the dates of the transaction are each day in the period 1 September– 31 December 20X3. However, if exchange rates do not fluctuate significantly, Entity C may use a rate that approximates the actual rates as permitted by paragraph 22 of IAS 21. If that is the case, Entity C may, for example, translate each month’s expense of FC100 (FC400 ÷ 4) into its functional currency using the average exchange rate for each month for the period 1 September–31 December 20X3. |
IE15 | As Entity C recognises the expense in the period 1 September–31 December 20X3, it recognises a corresponding liability in respect of its obligation to pay the supplier. The liability is a monetary item. Entity C updates the translated amount of the liability until the liability is settled. |
IE16 | On 1 January 20X4, Entity D enters into a contract to sell two products to a customer. Entity D transfers one product on 1 March 20X4 and the second on 1 June 20X4. As required by the contract, the customer pays a fixed purchase price of FC1,000, of which FC200 is due and received in advance on 31 January 20X4 and the balance is due and received on 1 June 20X4. |
IE17 | The following facts are relevant:
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IE18 | The spot exchange rates are:
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IE19 | The following journal entries illustrate how Entity D accounts for the foreign currency aspects of the contract:
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