ASC

ASC 830-946

Financial Services—Investment Companies

830 Foreign Currency Matters

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In brief

AdvancedForeign currencyIndustry-specificPresentationDisclosure

This Subtopic tells investment companies how to compute and report foreign currency transaction gains and losses on foreign-currency-denominated securities, cash, forward contracts, receivables/payables, income, and expenses. Ongoing revaluation of unsettled foreign-currency items produces unrealized foreign currency gain or loss, which is reclassified to realized gain or loss upon settlement (830-946-45-1). Critically, a fund is permitted—but not required—to separately isolate the foreign currency component of realized and unrealized gains and losses on investments, and it must disclose whichever practice it follows (830-946-45-4; 830-946-50-1).

Key points (7)
  • Revaluation of investments and unsettled foreign currency receivables/payables is unrealized foreign currency gain or loss; on actual cash settlement it becomes realized gain or loss (830-946-45-1, 45-23).
  • Separate reporting of the foreign currency portion of changes in fair value and realized gains on investments is optional, but if elected must follow this Subtopic's formulas, and the entity must disclose its inclusion/exclusion practice (830-946-45-4, 45-36, 830-946-50-1).
  • If separate reporting is elected: (fair value in FC − cost in FC) × valuation-date spot rate = unrealized fair value appreciation/depreciation, and (cost in FC × valuation-date spot rate) − cost in functional currency = unrealized foreign currency gain or loss; substitute sale proceeds and sale trade date for sales (830-946-45-17, 45-20).
  • Foreign currency cash is treated like a security: receipts are recorded at the receipt-date spot rate (no gain or loss on acquisition), disbursements release cost (specific identification, FIFO, or average) and produce realized foreign currency gain or loss, with balances retranslated each valuation date (830-946-45-7 through 45-9).
  • Forward exchange contracts are recorded at inception at the forward rate and subsequently measured at fair value daily, with unrealized gain or loss equal to the difference between the forward-rate value and the original contracted value, reclassified to realized at settlement; a hedged security purchase and its payable are still recorded at the trade-date spot rate (830-946-45-10 through 45-12).
  • Interest, discount accretion/premium amortization, dividends (recorded on the ex-date), and expenses are accrued daily in the foreign currency and translated at daily spot rates (weekly or monthly averages acceptable if rates are not volatile), with the related receivable/payable retranslated daily (830-946-45-25, 45-28, 45-31, 45-35).
  • Nonreclaimable withholding tax is accrued with the related income when the rate is fixed and known and shown parenthetically or as a contra item in the income section; reclaimable tax is recorded as a receivable, not an expense (830-946-45-34, 45-39).

For students. Exam questions here hinge on the elective nature of "isolating" the currency component of investment gains—many students wrongly assume separation is mandatory, when the rule is only that the fund disclose which practice it uses. Also remember that acquiring foreign currency never creates a gain or loss; only disbursement (or revaluation) does.

functional currencyspot rate translationrealized vs. unrealized foreign currency gain or lossforward exchange contractforeign withholding taxinvestment company net asset valuetrade date versus settlement datediscount accretion and premium amortization

Machine-generated study aid for ASC 830-946. Check the source paragraphs below.

830-946-00Status

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830-946-05Overview and Background

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830-946-05-1
This Subtopic provides guidance on computing and reporting foreign currency transaction gains or losses for investment companies that do any of the following:
  1. a
    Invest in securities denominated or expected to settle in currencies other than the U.S. dollar
  2. b
    Invest in currencies other than the U.S. dollar
  3. c
    Have foreign currency transactions.
830-946-05-2
A foreign currency gain or loss (whether realized or unrealized) results from any of the following sources:
  1. a
    The cost of securities held versus their carrying value based on current exchange rates
  2. b
    Payables or receivables for securities bought or sold at the transaction date versus actual amounts at settlement date or payable or receivable based on current exchange rates
  3. c
    Interest, dividends, and withholding taxes accrued versus the amount received or receivable based on current exchange rates
  4. d
    Expenses accrued versus the amount paid or payable in foreign currency, based on current exchange rates
  5. e
    Forward exchange contracts or foreign exchange futures contracts subsequently measured at fair value.

Withholding Tax

830-946-05-3
This Subtopic includes guidance on effects of withholding tax. Dividends and interest received from foreign investments may result in withholding taxes and other taxes imposed by foreign countries, usually at rates from 10 percent to 35 percent. Tax treaties between certain countries and the United States may reduce or eliminate such taxes.

830-946-15Scope and Scope Exceptions

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Overall Guidance

830-946-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 946-10-15.

830-946-45Other Presentation Matters

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Overall Guidance

830-946-45-1
The ongoing revaluation of investments and receivables or payables representing unsettled foreign currency transactions shall be classified as unrealized foreign currency gain or loss. On settlement (when there is actual cash flow), a realized foreign currency gain or loss shall be recorded.
830-946-45-2
Each transaction denominated in a foreign currency can initially be measured only in that currency. Any differences between originally recorded amounts and currently consummated or measured amounts in the reporting currency are a function of both of the following factors:
  1. a
    Foreign exchange rate changes
  2. b
    Changes in market prices.
830-946-45-3
Those effects shall be identified, computed, and reported other than for gains and losses on investments.
830-946-45-4
The practice of not separately disclosing the portion of the changes in fair values of investments and realized gains and losses thereon that result from foreign currency rate changes is permitted. However, separate reporting of such gains and losses is allowable and, if adopted by the reporting entity, shall conform to the guidance in this Subtopic.
830-946-45-5
For funds that invest in countries that are highly inflationary, the separate measurement and disclosure of the foreign currency element may not be meaningful.
830-946-45-6
The remainder of the guidance in this Section is organized as follows:
  1. a
    Cash
  2. b
    Derivative instruments—forward exchange contracts
  3. c
    Securities
  4. d
    Receivables and payables
  5. e
    Income
  6. f
    Expenses
  7. g
    Financial statement presentation.

Cash

830-946-45-7
Foreign currency cash balances and movements shall be accounted for in the same way that foreign-currency-denominated securities are. Every receipt of a foreign currency shall be treated as a purchase of a security and recorded in the functional currency at the spot rate on the cash receipt date. Similarly, every disbursement of a foreign currency shall be treated as a sale of a security and the appropriate functional currency cost shall be released, depending on whether a specific identified cost, the first-in, first-out (FIFO) method, or an average cost is used.
830-946-45-8
The acquisition of a foreign currency does not result in any foreign currency gain or loss. However, the disbursement of a foreign currency shall result in a realized foreign currency gain or loss that is the difference between the functional currency equivalent of the foreign currency when it was acquired and the foreign currency disbursement translated at the spot rate on the disbursement date.
830-946-45-9
Also, as is the case with all other assets and liabilities denominated in a foreign currency, foreign currency cash balances shall be translated on each valuation date at the spot rate on that date, resulting in unrealized foreign currency gain or loss.

Derivative Instruments—Forward Exchange Contracts

830-946-45-10
If a fund enters into a forward exchange contract, the forward contract shall be recorded on the inception date at the forward rate and subsequently measured at fair value daily.
830-946-45-11
The unrealized foreign currency gain or loss on such a contract is the difference between the foreign currency amount valued at the forward rate (on the valuation date) and the original contracted value of the forward contract (the amount to be received or paid at expiration or settlement date). On the expiration or settlement date, the unrealized foreign currency gain or loss shall be reclassified as realized foreign currency gain or loss.
830-946-45-12
If the forward contract is meant to hedge the payable for the purchase of a security denominated in a foreign currency, the cost of the investment purchased and the related payable that has been hedged by the forward contract shall still be recorded at the spot rate on the trade date, and the payable shall be translated into the functional currency daily.

Securities

830-946-45-13
The guidance on foreign currency matters related to securities is organized as follows:
  1. a
    Purchased interest
  2. b
    Subsequently measuring at fair value
  3. c
    Sale of securities
  4. d
    Sale of interest.
830-946-45-14
Purchased interest represents the interest accrued between the last coupon date and the settlement date of the purchase. It should be recorded in the functional currency as interest receivable at the spot rate on the purchase trade date, and subsequently measured at fair value using each valuation date's spot rate. After the settlement date, daily interest income should be accrued at the daily spot rate. It may be impractical to prepare the foregoing calculations daily, and, therefore, the use of a weekly or monthly average rate may be appropriate in many cases, especially if the exchange rate does not fluctuate significantly. However, if the exchange rate fluctuation is significant, the calculation should be made daily.
830-946-45-15
A fund investing in foreign securities generally invests in such securities to reap the potential benefits offered by the local capital market. It may also invest in such securities as a means of investing in the foreign currency market or of benefiting from the foreign currency rate fluctuation. The extent to which separate information regarding foreign currency gains or losses will be meaningful will vary depending on the circumstances, and separate information may not measure with precision foreign exchange gains or losses associated with the economic risks of foreign currency exposures. A foreign currency rate fluctuation, however, may be an important consideration in the case of foreign investments, and a reporting entity may choose to identify and separately report any resulting foreign currency gains or losses as a component of unrealized fair value gains or losses on investments.
830-946-45-16
The fair value of securities shall initially be determined in the foreign currency and translated at the spot rate on the purchase trade date. The unrealized gain or loss between the original cost (translated on the trade date) and the fair value (translated on the valuation date) comprises both of the following elements:
  1. a
    Changes in the fair value of securities before translation
  2. b
    Movement in foreign currency rate.
830-946-45-17
Such movements may be combined as permitted by paragraph 946-830-45-4. If separate disclosure of the foreign currency gains and losses is chosen, the changes in the fair value of securities before translation should be measured as the difference between the fair value in foreign currency and the original cost in foreign currency translated at the spot rate on the valuation date. The effect of the movement in the foreign exchange rate shall be measured as the difference between the original cost in foreign currency translated at the current spot rate and the historical functional currency cost. These values can be computed as follows:
  1. a
    (Fair value in foreign currency - original cost in foreign currency) x valuation date spot rate = unrealized fair value appreciation or depreciation.
  2. b
    (Cost in foreign currency times valuation date spot rate) - cost in functional currency = the unrealized foreign currency gain or loss.
830-946-45-18
The preceding formulas could be refined to isolate and report the rate change element in the changes in the gains or losses on investments between valuation dates. However, the cost of doing so would not be justified for the relatively minor improvement thereof. Furthermore, such refinement would both:
  1. a
    Be a departure from the method required for federal income tax reporting for realized foreign currency gains or losses on debt securities
  2. b
    Represent a departure from the practice of those investment companies that presently separately report in their financial statements the effects of foreign exchange on securities gains or losses.
830-946-45-19
For short-term securities held by a fund that follows the amortized cost method of valuation, the amortized cost value should be substituted for fair value in the formulas given in the preceding two paragraphs if separate reporting is chosen by the reporting entity.
830-946-45-20
If separate reporting of foreign currency gains and losses on sales of securities is chosen by the reporting entity, the computation of the effects of the changes in fair value and the foreign currency rate is similar to that described in paragraphs
946-830-45-17 through 45-18
. Fair value in the formula given in those paragraphs should be replaced with sale proceeds and valuation date shall be replaced with sale trade date. Accordingly, the values shall be computed as follows:
  1. a
    (Sale proceeds in foreign currency - original cost in foreign currency) x sale trade date spot rate = realized fair value gain or loss on sale of security.
  2. b
    (Cost in foreign currency x sale trade date spot rate) - cost in functional currency = realized foreign currency gain or loss.
830-946-45-21
The sale of a security results in a receivable for the security sold. The related receivable shall be recorded on the trade date at the spot rate. On the settlement date, the difference between the recorded receivable amount and the actual foreign currency received converted into the functional currency at the spot rate shall be recognized as a realized foreign currency gain or loss.
830-946-45-22
Interest sold represents the accrued interest receivable between the last coupon date and the settlement date of sale of the security. The difference between the recorded interest receivable amount and the actual foreign currency received (converted into the functional currency at the spot rate) shall be recognized as a realized foreign currency gain or loss.

Receivables and Payables

830-946-45-23
All receivables and payables that are denominated in a foreign currency and that may relate to income or expense, or to securities sold or purchased, shall be translated into the functional currency each valuation date at the spot rate on that date. The difference between that amount and the functional currency amount that was recorded at various spot rates for income and expense items, and at the trade date spot rate in the case of sales and purchases of securities, is unrealized foreign currency gain or loss. Upon liquidation of the receivable or payable balance in a foreign currency, the difference shall be reclassified as realized foreign currency gain or loss.

Income

830-946-45-24
This guidance on foreign currency matters involving income is organized as follows:
  1. a
    Interest
  2. b
    Accretion and amortization
  3. c
    Dividends
  4. d
    Withholding tax.
830-946-45-25
Interest on securities denominated in a foreign currency shall be calculated at the stated rate of interest in the foreign currency. The interest shall be accrued daily in the foreign currency at the stated interest rate and translated into the functional currency at the daily spot rate. It may be impractical to prepare such a calculation daily, and, therefore, the use of a weekly or monthly average rate may be appropriate in many cases, especially if the exchange rate does not fluctuate significantly. However, if the exchange rate fluctuation is significant, the calculation shall be made daily.
830-946-45-26
The related receivable balance along with purchased interest, if any, shall be accumulated in the foreign currency and translated into the functional currency daily using the spot rate for that date. The difference between the income accrued in the functional currency and the foreign currency receivable at the valuation date spot rate shall be recognized as an unrealized foreign currency gain or loss.
830-946-45-27
When the interest is received and recorded in the functional currency at the spot rate on that date, the unrealized foreign currency gain or loss shall be reclassified as realized foreign currency gain or loss.
830-946-45-28
Accretion of discounts and amortization of premiums on bonds shall be calculated daily in the foreign currency. The resulting amount of income or offset to income shall be translated into the functional currency using that day's spot rate. The same foreign currency amount shall be recorded as an addition to cost for accretion of discounts and a reduction to cost for amortization of premiums. Accordingly, cost consists of the original cost, translated at the spot rate in effect on the trade date the bond was bought and adjusted for discount accretion or premium amortization at the spot rate on the date of adjustment. As stated in paragraph 946-830-45-25, use of a weekly or monthly average rate may be appropriate in certain circumstances.
830-946-45-29
On maturity, the carrying cost (including accretion or amortization) of the security in the foreign currency equals the proceeds. However, this will not be the case in the functional currency. The original cost shall be translated into the functional currency at the spot rate on the trade purchase date and the accretion or amortization shall be translated at periodic spot rates. The proceeds shall be translated into the functional currency at the spot rate on the maturity date. The difference between the proceeds and the accumulated cost in the functional currency shall be recognized as a realized foreign currency gain or loss.
830-946-45-30
Recording dividends on foreign securities is often difficult because, in certain countries, entities customarily declare dividends retroactively or there is a lack of timely information. Additionally, in some countries, the sequencing of the declaration date and ex-dividend date may be different from the sequencing of these dates in the United States, thus necessitating a modification of the practice of recording dividends on the ex-dividend date (see paragraph 946-320-35-5). Also, foreign entities often declare stock dividends instead of cash dividends or take other corporate actions such as issuing rights or warrants.
830-946-45-31
Dividend income on securities denominated in foreign currency shall be recorded on the ex-date, at the spot exchange rate of the foreign currency to the reporting currency on that date. The related dividend receivable shall be translated into the functional currency daily at the spot rate, and the difference between the dividend accrued in the functional currency and the foreign currency receivable at the valuation date spot rate shall be recognized as an unrealized foreign currency gain or loss. When the dividend is received, the unrealized foreign currency gain or loss shall be reclassified as realized foreign currency gain or loss.
830-946-45-32
The preceding approach to measuring investment income ensures that investment income accrued on foreign securities reflects the investment transaction without regard to the foreign currency gain or loss created in the time between the accrual and collection of the income.
830-946-45-33
Many foreign countries do not tax capital gains on investments by foreign investors; however, if such gains are taxable, an accrual for capital gains taxes payable on both realized and unrealized gains shall be included in the net asset value per share calculation.
830-946-45-34
Whenever tax is withheld from investment income at the source, the amounts withheld that are not reclaimable shall be accrued along with the related income on each income recognition date if the tax rate is fixed and known. If the tax withheld is reclaimable from the local tax authorities, it shall be recorded as a receivable and not as an expense. When the investment income is received net of the tax withheld, a separate realized foreign currency gain or loss shall be computed on the gross income receivable and the accrued tax expense. If the tax rate is not known or estimable, such expense or receivable shall be recorded on the date the net amount is received; accordingly, there would be no foreign currency gain or loss. However, if a receivable is recorded, there may be a foreign currency gain or loss through the date such receivable is collected.

Expenses

830-946-45-35
The accounting for expenses payable in a foreign currency is identical to that for investment income receivable in a foreign currency. An expense shall be accrued as incurred and translated into the functional currency at the spot rate each day. The use of an average weekly or monthly foreign currency rate would be acceptable if the foreign currency rate does not fluctuate significantly. The related accrued expense balance shall be accumulated in the foreign currency and translated into the functional currency daily, using the spot rate for that date. The difference between the expense accrued in the functional currency and the related foreign currency accrued expense balance translated into the functional currency at the valuation date spot rate shall be recognized as an unrealized foreign currency gain or loss. When the expense is paid, the unrealized foreign currency gain or loss shall be reclassified as realized foreign currency gain or loss.

Financial Statement Presentation

830-946-45-36
An investment company is not required to separately disclose that portion of unrealized and realized gains and losses on investments that results from foreign currency changes. All other foreign currency gains or losses shall be reported under the realized and unrealized gain or loss on investments and foreign currency section in the statement of operations.
830-946-45-37
For example, realized foreign currency gain or loss on interest and dividends shall be included in the realized foreign currency gain or loss component of net realized gain or loss. All unrealized foreign currency gain or loss, other than those on investments, shall be reported as unrealized appreciation or depreciation on translation of assets and liabilities in foreign currencies. The statement of changes in net assets and the statement of assets and liabilities shall reflect the same realized and unrealized gain and loss components. However, it is permissible to report each of the following items as single components in those statements:
  1. a
    The combination of the net realized gains or losses from investments with net realized gains or losses from foreign currency transactions
  2. b
    The combination of the net unrealized appreciation (depreciation) on investments with the net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies.
830-946-45-38
If separate reporting of the unrealized and realized foreign currency gains or losses on investments is chosen, such gains and losses shall be aggregated with all other foreign currency gains and losses and reported as described in the preceding paragraph.
830-946-45-39
Taxes withheld that are not reclaimable, if any, on foreign source income shall be deducted from the relevant income item and shall be shown either parenthetically or as a separate contra item in the income section of the statement of operations. Taxes levied on the aggregate income or capital gains of the investment company itself shall be presented in a manner that is similar to that used for income taxes. The normal withholding taxes shall be presented as follows.
  • Interest or dividend income (net of withholding taxes of $ X) $XXX or Interest or dividend income $XXX Less withholding tax (XXX)

830-946-50Disclosure

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830-946-50-1
An entity shall disclose its practice of either including or excluding that portion of realized and unrealized gains and losses on investments that results from foreign currency changes with or from other foreign currency gains and losses.
830-946-50-2
Foreign currency risk associated with investing in foreign securities shall be assessed continuously by management and considered for financial statement disclosure, including disclosures about all of the following:
  1. a
    Liquidity. Because certain foreign markets are illiquid, market prices may not necessarily represent fair value.
  2. b
    Size. If market capitalization is low, a fund's share in the entire market (particularly if single-country funds are involved) or in specific securities may be proportionately very large, and the fair value, consistent with Topic 820, may not be representative of the price that would be received if the fund sold its large proportion of the specific security ("block") at the measurement date.
  3. c
    Valuation. Because of liquidity problems as well as other factors, such as securities that are unlisted or securities that are traded in inactive markets, funds are required to develop procedures consistent with Topic 820 for measuring the fair values of such securities. Doing so may be difficult in a foreign environment; while others may perform the research and provide supporting documentation for fair values, the ultimate responsibility for determining the fair values of securities rests with the management.
830-946-50-3
These disclosures are no different from those that might be required for domestic securities with the same attributes. The preceding risks shall be disclosed in the notes to financial statements if such factors exist in the markets in which the fund has material investments.
830-946-50-4
For funds that invest in countries that are highly inflationary, the separate disclosure of the foreign currency element may not be meaningful and the disclosures in this Section may not be appropriate.

830-946-55Implementation Guidance and Illustrations

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Illustrations

830-946-55-1
For illustrative purposes, this Section assumes that the U.S. dollar is the functional currency of the reporting investment company.
830-946-55-2
This Example illustrates the application of the guidance in this Subtopic. The first two illustrations apply if separate disclosures of the foreign currency elements of unrealized and realized gains and losses on investments are chosen by the reporting entity.
830-946-55-3
Calculations for securities purchases and sales follow.
  • ABC Fund uses US dollars (USD) as its functional currency. "ABC buys 1,000 shares of XYZ GBP 15.00 with a spot exchange rate of USD 1.75 = GBP 1.00." Foreign currency cost basis = " GBP 15.00 × 1,000 " = GBP " 15,000 " Functional currency cost basis = " GBP 15,000 × 1.75 " = USD " 26,250 " Market gain or loss = (Foreign currency sale proceeds − foreign currency cost) × foreign exchange rate on day of sale Currency gain or loss = Foreign currency cost × (foreign exchange rate day of sale − foreign exchange rate day of purchase) "Assume a sale of 1,000 XYZ GBP 12.00 and USD 1.50 = GBP 1.00:" Foreign Currency proceeds = "GBP 12.00 × 1,000" = GPB " 12,000 " Functional currency proceeds = "GBP 12,000 × 1.50" = USD " 18,000 " Market loss = "(GBP 12,000 − GBP 15,000) × 1.50" = USD " (4,500)" Currency loss = "(GBP 15,000 × 1.50 − 1.75)" = USD " (3,750)" Total loss USD " (8,250)" Proof Functional currency proceeds USD " 18,000 " Functional currency cost USD " (26,250)" USD " (8,250)"
830-946-55-4
Calculations and journal entries related to subsequently measuring the securities at fair value follow.
  • DAY 1: "1,000 XYZ measured at fair value GBP 16.00; spot rate: USD 1.85 = GBP 1.00." Fair value gain or loss = (Foreign currency fair value − foreign currency cost) × current foreign exchange rate Currency gain or loss = Foreign currency cost × (current foreign exchange rate − foreign exchange rate on day of purchase) Fair value gain = "(GBP 16,000 − GBP 15,000) × 1.85" = USD " 1,850 " Currency gain = "GBP 15,000 × (1.85 − 1.75)" = USD " 1,500 " Total gain in functional currency = USD " 3,350 " "Total gain − (GBP 16,000 × 1.85) − (GBP 15,000 × 1.75) = USD 29,600 − USD 26,250 = USD 3,350" Measure at Fair Value Journal Entries [Average rates may be used if fluctuations in exchange rates aren't significant] DAY 2: "1,000 XYZ measured at fair value GBP 17.00; spot rate: USD 1.80 = GBP 1.00." Fair value gain = "(GBP 17,000 − GBP 15,000) × 1.80" = USD " 3,600 " Currency gain = "GBP 15,000 × (1.80 − 1.75)" = USD 750 Total gain in functional currency USD " 4,350 " Daily Journal Entries Fair value gain or loss = "USD 3,600 − USD 1,850" = USD " 1,750 " Currency gain or loss = "USD 750 − USD 1,500" = USD (750) "Day 2 gain (USD 4,350 − USD 3,350)" = USD " 1,000 "
830-946-55-5
Calculations and journal entries for changes in foreign currency exchange rate follow.
  • "Sale of 1,000 XYZ GBP 12.00 = GBP 12,000 receivable USD 1.50 = GBP 1.00 " = USD " 18,000 " DAY 1: Spot rate moves to USD 1.55 = GBP 1.00. Currency gain = "GBP 12,000 × (1.55 − 1.50) .05" = USD 600 DAY 2: Spot rate moves to USD 1.58 = GBP 1.00. Currency gain = "GBP 12,000 × (1.58 − 1.50) .08 " = USD 960 Currency gain Day 1 Day 2 Daily Journal Entry USD 600 USD 360
830-946-55-6
Calculations and entries for changes between the trade date and the settlement date follow.
  • Trade Date "Purchase 1,000 XYZ GBP 15.00; exchange rate: USD 1.75 = .00." Cost basis: "USD 26,250 or GBP 15,000" Debit: sterling securities at cost USD " 26,250 " Credit: payables for securities purchased USD " 26,250 " Settlement Date "Spot rate: USD 1.80 = GBP 1.00; GBP 15,000 is purchased at the spot rate for USD 27,000." Debit: payables for securities purchased USD " 26,250 " Debit: realized currency gain or loss USD 750 Credit: cash USD " 27,000 "
830-946-55-7
Calculations and entries for settlement against foreign currency cash balances follow.
  • "GBP 20,000 balance is available in London." "Lot a: GBP 10,000 purchased USD 1.65 per GBP 1.00" "USD US cost basis: USD 16,500" "Lot b: GBP 10,000 purchased USD 1.85 per GBP 1.00" "USD US cost basis: USD 18,500" Assume lot b will be liquidated first at USD 1.80 per GBP 1.00. Lot b DR: cash USD " 18,000 " DR: realized currency gain or loss USD 500 CR: sterling cash at cost USD " 18,500 " Assume one half of lot a will be liquidated at USD 1.80 per GBP 1.00. Lot a DR: cash USD " 9,000 " CR: sterling cash at cost USD " 8,250 " CR: realized currency gain or loss USD 750 Realized foreign exchange gain on payable remains the same. Between Purchase Settlement and Sale Trade Dates "Measure the holding at fair value, based on both local market price and daily spot rate."
830-946-55-8
Calculations and entries for the sale of XYZ shares follow.
  • "Sell 1,000 XYZ GBP 18.00; exchange rate: USD 1.90 = GBP 1.00" "Total proceeds: USD 34,200 or GBP 18,000" Foreign exchange gain is recognized on the sale trade date based on the holding period. Receivable is booked at the spot rate on sale trade date. Debit: receivable for securities sold USD " 34,200 " "Credit: sterling securities at cost (GBP 15,000 x 1.75)" = USD " 26,250 " "Credit: realized fair value gain or loss (GBP 18,000 - GBP 15,000) x 1.90" = USD " 5,700 " (a) "Credit: realized currency gain or loss (GBP 15,000 x 1.90) - 26,250" = USD " 2,250 " (a) "Maintain local currency basis (GBP 18,000) on the receivable record." Between Sale Trade Date and Settlement Date Mark the receivable at fair value based on the prevailing spot rate. Sale Settlement Date Spot rate: USD 1.85 = GBP 1.00 "GBP 18,000 is converted at the spot rate to USD 33,300." Foreign exchange loss is recognized upon the receipt (settlement) of the receivable. Debit: cash USD " 33,300 " Debit: realized currency gain or loss USD 900 Credit: receivables from securities sold USD " 34,200 " If foreign currency cash received is to be kept as local currency: "Purchase: GBP 18,000 USD 1.85 = GBP 1.00" "Cost basis: USD 33,300" Debit: sterling cash at cost USD " 33,300 " Credit: cash USD " 33,300 " (a) If separate disclosures of the foreign currency elements of unrealized and realized gains and losses on investments are chosen by the entity.
830-946-55-9
This Example provides illustrative financial statements that show application of the requirements in this Subtopic.
830-946-55-10
An illustrative statement of operations follows.
  • The ABC Fund Statement of Operations "Year Ended December 31, 19X1" Investment income Interest (net of withholding taxes of $XXXX) $XXXX Dividends (net of withholding taxes of $XXXX) XXXX XXXX Expenses Investment advisory fee XXXX Interest XXXX Professional fees XXXX Custodian and transfer agent fees XXXX Distribution expenses XXXX Total expenses XXXX Net investment income XXXX Realized and unrealized gain (loss) from investments and foreign currency Net realized gain (loss) from: Investments XXXX Foreign currency transactions (a) XXXX Net increase (decrease) in unrealized appreciation or (depreciation) on: Investments XXXX Translation of assets and liabilities in foreign currencies (a) XXXX Net realized and unrealized gain (loss) from investments and foreign currency XXXX Net increase (decrease) in net assets resulting from operations $XXXX (a) "If separate reporting is adopted, these captions would also include foreign currency effects of realized and unrealized gains and losses on investments. If separate reporting is not adopted, such foreign currency effects would be included in the investments captions." See accompanying notes to financial statements.
830-946-55-11
An illustrative statement of changes in net assets follows.
  • "The ABC Fund " Statement of Changes in Net Assets "Year Ended December 31, 19X1" From operations: Net investment income $XXXX Net realized gains (losses) from investments (a) XXXX "Net realized gains (losses) from foreign currency transactions (a), (b)" XXXX Net increase (decrease) in unrealized appreciation (depreciation) on investments (c) XXXX "Net increase (decrease) in unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies (b), (c)" XXXX Net increase (decrease) in net assets resulting from operations XXXX Dividends and distributions: From net investment income (XXXX) From net realized gains on investments and foreign currency transactions (XXXX) (XXXX) From share transactions: Net proceeds from sale of shares XXXX Cost of shares repurchased XXXX Dividends reinvested XXXX Net increase in net assets derived from share transactions XXXX Net increase (decrease) in net assets XXXX Net assets Beginning of period XXXX End of period (including undistributed net investment income of $XXXX) $XXXX (a) It is also acceptable to combine these lines and present them as a single item: Net realized gains (losses) from investments and foreign currency transactions. (b) "If separate reporting is adopted, these captions would also include foreign currency effects of realized and unrealized gains and losses on investments. If separate reporting is not adopted, such foreign currency effects would be included in the investments captions." (c) It is also acceptable to combine these lines and present them as a single item: Net increase (decrease) in unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies. See accompanying notes to financial statements.
830-946-55-12
An illustrative statement of assets and liabilities follows.
  • The ABC Fund Statement of Assets and Liabilities (a) "Year Ended December 31, 19X1" Assets "Investments in securities, at value (cost − $XXXX)" $XXXX Cash denominated in foreign currencies (cost − $XXXX) XXXX Cash XXXX Receivable for investments sold XXXX Dividends and interest receivable XXXX Receivable for shares of beneficial interest sold XXXX Deferred organizational expense XXXX Other assets XXXX Total assets $XXXX Liabilities Payable for investments purchased XXXX Payable for shares repurchased XXXX Payable to affiliates XXXX Other liabilities XXXX Total liabilities $XXXX Net assets Beneficial interest XXXX shares of $XXXX par value outstanding (unlimited amount authorized) $XXXX Undistributed net investment income XXXX Undistributed net realized gains from investments (b) XXXX Undistributed net realized gains (losses) from foreign currency transactions (a)(c) XXXX Net unrealized appreciation (depreciation) of investments (d) XXXX Net unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies (c)(d) XXXX Net assets applicable to shares outstanding $XXXX Net asset value per share $XXXX (a) This guidance does not reflect consideration of Subtopic 720-15. (b) It is also acceptable to combine these lines and present them as a single item: Undistributed net realized gains (losses) from investments and foreign currency transactions. (c) "If separate reporting is adopted, these captions would also include foreign currency effects of realized and unrealized gains and losses on investments. If separate reporting is not adopted, such foreign currency effects would be included in the investments captions." (d) It is also acceptable to combine these lines and present them as a single item: Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies. See accompanying notes to financial statements.
830-946-55-13
An illustrative note to the financial statements concerning foreign currency follows.
  • Foreign Currency. Amounts denominated in or expected to settle in foreign currencies are translated into U.S. dollars at rates reported by a major New York City bank on the following basis:
    1. a
      Fair value of investment securities, other assets, and liabilities—at the closing rate of exchange at the balance sheet date
    2. b
      Purchases and sales of investment securities, income, and expenses—at the rate of exchange prevailing on the respective dates of such transactions (or at an average rate if significant rate fluctuations have not occurred).
830-946-55-14
An illustrative disclosure if the fund chooses to report the foreign currency elements of realized and unrealized gains and losses on investments follows.
  • The Fund isolates that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held.
  • Reported net realized foreign exchange gains or losses arise from sales of portfolio securities, sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities including investments in securities at fiscal year end, resulting from changes in the exchange rate.
830-946-55-15
An illustrative disclosure if the fund chooses not to report foreign currency elements of realized and unrealized gains and losses on investments follows.
  • The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate.
830-946-55-16
The following illustrative note shall be considered if applicable to the respective fund.
  • The Fund has obtained the approval of the Central Bank for the registration and conversion into foreign currency of all proceeds of the offering to be invested in the ABC country securities markets, which by its terms ensures repatriation of such investment and the remittance of profits and dividends accruing on the investment. Notwithstanding the foregoing, the right of the Fund to repatriate its investments in ABC country securities and to receive profits, capital gains, and dividends in foreign exchange is subject to the power of the Central Bank, with the approval of the President of the ABC country, to restrict the availability of foreign exchange in the imminence of, or during, an exchange crisis or in times of national emergency.
  • The Fund has significant investments in the equity securities of entities located in the ABC country. Future economic and political developments in the country could adversely affect the liquidity or value, or both, of the ABC country securities in which the Fund is invested.
  • There are nationality restrictions on the ownership of certain equity securities of the ABC country entities. Based on confirmations that the Fund received from the ABC country's governmental authorities, the Fund believes that it is permitted to make certain investments through the ABC country's Trust that are otherwise available only to the ABC country.

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