# ASC 830-946-55: Foreign Currency Matters — Financial Services—Investment Companies — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

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## ASC 830-946-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/830/946/#55-implementation-guidance-and-illustrations)

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#### Illustrations

##### [830-946-55-1](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-1)

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For illustrative purposes, this Section assumes that the U.S. dollar is the functional currency of the reporting investment company.

##### [830-946-55-2](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-2)

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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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-3)

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Calculations for securities purchases and sales follow.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-BF579DFD-6F36-44B6-8C61-1CF2D4746FCD-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-4)

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Calculations and journal entries related to subsequently measuring the securities at [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") follow.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-A3E3E8FF-EC82-4391-BFF8-791586282B85-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-5)

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Calculations and journal entries for changes in foreign currency exchange rate follow.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-4E5B4E87-4D4B-4CCD-9FBA-B2DCECE6378A-low.gif)
    
    "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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-6)

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Calculations and entries for changes between the trade date and the settlement date follow.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-FFE439EB-23A9-4F5C-98A6-D4E229E6F6BD-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-7)

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Calculations and entries for settlement against foreign currency cash balances follow.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-614D71F0-EC91-4F24-AB1E-FCF27D18D659-low.gif)
    
    "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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-8)

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Calculations and entries for the sale of XYZ shares follow.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-E2F1D56D-0DDD-422B-B11D-8749105AABE4-low.gif)
    
    "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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-9)

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This Example provides illustrative financial statements that show application of the requirements in this Subtopic.

##### [830-946-55-10](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-10)

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An illustrative statement of operations follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-16040A1F-EE40-48E1-8031-85588535C439-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-11)

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An illustrative statement of changes in net assets follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-283CE683-870E-4E8B-AC14-E93812837A77-low.gif)
    
    "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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-12)

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An illustrative statement of assets and liabilities follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-C8FB80C1-556F-46CF-885F-81B251C5FAA3-low.gif)
    
    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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-13)

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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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-14)

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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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-15)

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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](https://asc.understandingaccounting.org/asc/830/946/#830-946-55-16)

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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.