These examples accompany, but are not part of, IAS 21. The text of the Basis for Conclusions on IAS 21 is contained in Part C of this edition. They illustrate aspects of IAS 21 but are not intended to provide interpretative guidance.
IE1 | These examples illustrate how an entity might apply some of the requirements in IAS 21 in hypothetical situations based on the limited facts presented. Although some aspects of the examples might be present in actual fact patterns, fact patterns in the examples are simplified, and an entity would need to evaluate all relevant facts and circumstances when applying IAS 21. The examples do not illustrate all the requirements in IAS 21, nor do they create additional requirements. |
IE2 | Examples 1–3 illustrate how an entity assesses whether a currency is exchangeable (Step I as set out in paragraphs 8, 8A–8B and A2–A10). Examples 4–5 illustrate how an entity estimates the spot exchange rate when a currency is not exchangeable (Step II as set out in paragraphs 19A and A11–A17). In all five examples:
|
IE3 | The relevant authority in Entity Y’s jurisdiction makes PC available to entities in exchange for LC only after completion of an administrative process. The authority requires entities wishing to obtain PC to explain how they intend to use PC when submitting a request for PC. In usual circumstances, an entity obtains PC after N days—that is, N days is the time the authority needs, under its administrative process, to perform checks and provide PC. |
IE4 | Entity X considers N days to be a normal administrative delay applying to a transaction to exchange LC for PC through this exchange mechanism. Subject to the other requirements in paragraphs A2–A10, Entity X considers LC to be exchangeable into PC if Entity X is able to obtain PC within N days of requesting it. |
IE5 | The relevant authority in Entity Y’s jurisdiction is unable to meet demand for PC and temporarily stops making PC available through the exchange mechanism it administers. In the absence of this exchange mechanism, individual resellers settle transactions to exchange LC for PC at an exchange rate that is not set by the authority. These exchange transactions do not create enforceable rights and obligations, and no other markets or exchange mechanisms exist in which a transaction to exchange LC for PC would create such rights and obligations. |
IE6 | In assessing whether LC is exchangeable into PC, Entity X considers only markets or exchange mechanisms in which a transaction to exchange LC for PC would create enforceable rights and obligations. Entity X concludes that LC is not exchangeable into PC because the exchange transactions with individual resellers do not create enforceable rights and obligations, and no other markets or exchange mechanisms exist in which a transaction to exchange LC for PC would create such rights and obligations. |
IE7 | The relevant authority in Entity Y’s jurisdiction prevents entities from obtaining PC for purposes other than importing food and medicine. |
IE8 | In translating the results and financial position of Entity Y, Entity X assesses whether it is able to obtain PC for the purpose of realising its net investment in Entity Y. Because Entity X is prevented from obtaining PC for this purpose, Entity X concludes that LC is not exchangeable into PC. Entity X’s ability to obtain PC for the purpose of importing food and medicine is irrelevant to the assessment. |
IE9 | At 31 December 20X1 the relevant authority in Entity Y’s jurisdiction prevents entities from obtaining PC for the purpose of realising a net investment in an entity operating in that jurisdiction. Other than that restriction, entities are able to obtain PC and the LC:PC exchange rate is free-floating. Only one exchange rate applies to transactions for exchanges of LC for PC; it is updated several times a day. |
IE10 | At the measurement date of 31 December 20X1 Entity X is unable to obtain PC to realise its net investment in Entity Y. Therefore, Entity X concludes that LC is not exchangeable into PC. |
IE11 | Because Entity X concludes that LC is not exchangeable into PC, Entity X is required to estimate the spot exchange rate that meets the objective in paragraph 19A. |
IE12 | Applying paragraphs A11–A14, Entity X considers whether it might use the observable LC:PC exchange rate for the purpose of realising a net investment in an entity. To do so, it assesses whether that observable exchange rate meets the objective in paragraph 19A and considers:
|
IE13 | Considering these factors, Entity X determines that the observable LC:PC exchange rate meets the objective in paragraph 19A. Therefore, Entity X may use that observable exchange rate as the estimated spot exchange rate when it translates the results and financial position of Entity Y. |
IE14 | At 31 December 20X1 the jurisdiction in which Entity Y operates is subject to hyperinflation [Refer:IAS 29 paragraphs 2–3]. The relevant authority in Entity Y’s jurisdiction prevents entities from obtaining PC for the purpose of realising a net investment in an entity operating in that jurisdiction. However, from 30 April 20X2, the authority allows entities to obtain PC for that purpose. |
IE15 | At the measurement date of 31 December 20X1 Entity X is unable to obtain PC to realise its net investment in Entity Y. Therefore, Entity X concludes that LC is not exchangeable into PC. |
IE16 | Because Entity X concludes that LC is not exchangeable into PC, Entity X is required to estimate the spot exchange rate that meets the objective in paragraph 19A. |
IE17 | Applying paragraphs A11–A12 and A15–A16, Entity X considers whether it might use the first exchange rate at which it is able to obtain the other currency after exchangeability of the currency is restored (first subsequent exchange rate) [Refer:paragraph A12(b)]. To do so, it assesses whether that first subsequent exchange rate meets the objective in paragraph 19A and considers:
|
IE18 | Considering these factors, Entity X determines that the first subsequent exchange rate does not reflect the prevailing economic conditions at the measurement date. Therefore, the first subsequent exchange rate does not meet the objective in paragraph 19A for the purpose of realising Entity X’s net investment in Entity Y. However, Entity X could adjust that rate, as necessary, to estimate a rate that meets the objective in paragraph 19A for realising its net investment in Entity Y. |