FOREIGN CURRENCY TRANSLATION

Foreign currency translation is the process of reporting financial information from one currency into other currencies. Foreign currency translation done to prepare joint financial statement that gives a report by readers information about operating the company globally , by taking into account the financial report of foreign currency of a subsidiary firm against foreign currency induk company. Additional three reasons he did translasi foreign currencies , which is this :

1 . records the transactions of foreign currency ;

2. account for its effect on corporate translasi currency ; and

3 . communicate with interested people foreign stocks.

DIFFERENCE BETWEEN THE TRANSLATION AND CONVERSION OF FOREIGN CURRENCY

Foreign currency translation not equal to conversion. Translation is just change units monetary like an existential balance sheet expressed in english pounds served reëxamined into value equivalent of us dollars. No exchange physical happened , and no transaction related that happen like when performed conversion. The busrts in foreign currency is been translated be of value equivalent of domestic currency exchange rates foreign exchange rate based on the price of a single unit of currency is expressed in other currencies. Currency of the country major trading bought and sold in the global market.With connected through a sophisticated telecommunication network , market participants include an intermediary bank and other currencies , the effort , the individual , and professional traders.

Transactions foreign currency happen to spot market , forward , or swap. Currencies are bought or sold at spot general should delivered soon is in a couple a working day. Exchange rate spot market influenced by many of , including the different levels of inflation among countries , differences interest rates national and expectations to the direction of the exchange rate in the future. The transaction in market forward is agreement to exchange a currency to a specific amount into another currency at a date in the future. Kuotasi on the forward expressed with a discount or premiums from the spot. Swap transactions involving spot purchases and sales forward spot or sale or purchase forward , over a currency simultaneously . Investors often utilizing swap transactions to take advantage of interest rates higher in a foreign country , at the same time protect ourselves to the movement of unfavorable rate of exchange rates foreign exchange .

THE TERM IN FOREIGN CURRENCY TRANSLATION

* conversion

Translation the one currency with other currencies

* exchange rate at this time

Current level of money influence on the financial statement.

* translasi foreign currency

The description or a count the number of using foreign currency as a unit of calculation.

* contract transaction forward

An agreement to perform translasi the currencies of different countries with an specif and time were approved.

* currency functional.

Major currencies used in a business and income and storage money .

* rate historical

Foreign currency exchange rates prevailing when assets or obligation with foreign currency first time in get.

A glossary translasi foreign currency adapted from psak ( sfas no.52 ) , 1981 .

1. Attribute , characteristic quantitative a post measured for the purposes of accounting. Example , cost histories and cost of replacing a that is an attribute of an asset .

2. Of converting , pertukatan a currency into currency other .

3. Exchange rate now , exchange rates prevailing on the financial report relevant .

4. Discounted , when the rate of exchange that the next lower than levels valid today .

5. position net assets at risk , surplus assets measured in or berdenominasi in foreign currency and rate now ditranslasikan by the use of an obligation are measured or berdenominasi in foreign currency and ditranslasikan by the use of the present .

6. foreign currencies , a currency besides currencies used by a country , currency besides currency reporting used by the company .

7. financial statement is in foreign currency , a financial statement that the use of foreign currency as a unit of measurement .

8. Foreign currency transactions , transactions ( i.e. sale or purchase of goods or services , loans or debt or receivable hade ) with expressed in terms of currency denominated functional in addition to the company .

9. Translasi foreign currencies , the process to declare jumlah-jumlah that berdenominasi or measured in a currency into currency another by means of the rupiah 's exchange rate of exchange between the two eyes the money .

10. foreign operatio , an operative who produces financial report ( 1 ) the combined or consolidated or reckoned based on equity method in the financial report of the company filer and ( 2 ) will be prepared in foreign currency denominated in addition to the complainant reporting the company .

11.forward exchange contact, a treaty to interchanging the currencies of different countries by using rate certain ( rate forward ) on a particular date in the future .

12. Currency functional , major currencies yanga suatau used by firm in its business activities , and in producing or using kasnya .

13. Exchange rate histories , exchange rate exchange rates foreign currencies use at the time of an asset or obligation in foreign currency bought or happen .

14. Local currency , currency a particular state used ; currency reporting used by an operative domestic or abroad .

15. The outposts monetary , an obligation to pay or right to receive a number of the unit of currency in a fixed value in the future .

16. Currency reporting , currencies used in composing company financial report.

17. The settlement date the date when a debt is paid by a receivable collected.

18. The spot , the exchange rate for exchanging currency in time immediately .

19. The transaction , the date when the accounting records are recorded in a transaction such company .

20. Adjustment translatoin , adjustment arising from process translasi financial report of currencies functional an enterprise being denominated trhe report.

21. A unit of measurement , currencies used to measure assets , obligation , income and load .

THE ADVANTAGES AND DISADVANTAGES OF FOREIGN CURRENCY TRANSLATIONS

If point of view local currency used ( viewpoints company local ) , the entry of adjustment translasi in profit walk need not perform. Include gains and losses translasi in profits could mendistorsikan relations financial original and can be misleading users the information. Profits or losses translasi shall be dealt from the perspective of local currency as adjustment against equity owner.

If currency reporting induk the company constitutes a unit of measurement of financial report be translation ( viewpoints companies ) , highly inadvisable to admit of profits or losses translasi earnings soon as possible. Viewpoint induk company see the son of foreign companies as the expansion of induk the company. Gains and losses translasi reflecting the increase or decrease in equity foreign investment in currency domestic and must be recognized .

1. Suspension of :

Adjustment translasi foreign currency accumulated separately capital as part of the merger

2. Suspension and amortization

Suspend the gains and losses is mengamortisasi adjustment beyond age benefits related items in the balance sheet

3. A portion of an adjournment

Concede the loss immediately when the , but only if realized just admitting of advantage

4. No of an adjournment

EFFECT OF FOREIGN CURRENCY TRANSLATION METHOD ON THE FINANCIAL STATEMENT

Although most technical issues in accounting tending to solved by itself in line with the passage of time , foreign exchange translasi terrnyata is an exception. That this trend will continue unabated supported by the development of events such as the collapse of domination of currency dollars , the movement of the value of the currency was approved by the government , and globalization the world capital markets , that has increased the importance of reporting and disclosure of finance. The development of events like this had major role increase their interest eksekutif- � � for finance , accountant , and financial community in the importance of economic and the consequences of translasi foreign exchange. Let 's see what defines and development of accounting teki-teki intemasional this.

Single rate method

Based on approach translasi this, financial statements foreign operations, regarded by holding company, self-organizing as an entity having a domicile of reporting their own. This is the neighborhood where local accounting affiliated company mentraksaksikan these foreign affairs of the business. To retain flavor local exchange of the report , a way to be found to translasi can be held by minimal distortion. A most excellent way is the use of a method of exchange rate in force. Despite the draw and simple , in a conceptual manner a method of exchange rate applies more blame by some for ruining the basic objective of consolidated financial report , that is because present, to benefit shareholders holding company, financial position and the results of operations and the parent companies of his son from the perspective of exchange is single. maintaining exchange is reporting induk as a unit of measurement of the company. In the methods of exchange rate applies, consolidated results would reflect perspekfif-perspektif exchange of each country where the companies are. For example , if a company assets dip = roleh a child abroad for va 1,000 when kursnya is $ 1, va = 1 the cost of historisnya from the perspective of dollars was $ 1,000 ; from the perspective of local exchange also $ 1,000. If the rate change into va 5 = $ 1, the cost of the assets of historical perspective dollar (translastion historically) , will cost $ 1,000. If the local exchange is fixed. Method rate also apply blame because assumes that all assets local affected by exchange rate risk ( that is, assumes that exchange fluctuations domestic ekivalen, caused by exchange rate fluctuations translasi walk , is an indicator change intrinsic value assets the ). This is rare right because the value of inventories and assets stay abroad generally supported by inflation local.

Multiple rate methods

The methods by combining double the rupiah 's exchange rate of exchange tramped , historically in the process of translation.

3 a method of a kind of it will be discussed here .

A method of historical .

Based on approach historical, that was popular in the us and everyplace of another before 1976 , assets smooth and the liability of a firm children in foreign exchange translated in reporting its parent by using rate in force. Assets and liabilities non-lancar ditranslasikan with the historical. Item-item financial report, except the burden of depreciation and amortization, ditranslasikan with an average exchange rate of each month operating or weighted average coal with the base of all the period will be reported. The burden of depreciation and amortization ditranslasikan by wearing historical rate prevailing at the time of the asset concerned obtained. This methodology unfortunately, has a weakness. For example , this method has a lacking justification conceptual. A definition that definition of assets and liability and non smoothly doesn ' t explain way classifications like that determine exchange rate which would used in the process transiasi .

Method monetary nonmoneter. As do method historical applies, method moniter nonmoneter wear pattern classifications the balance to determine rate translasi proper. Because monetary item-item solved in treasury ; discharging rate applies to mentranslasikan item-item foreign exchange produce exchange domestic ekivalen that reflects value realization or value its completion .

A method of temporal approach according to temporal , exchange translasi is a process of converting measurement ( that is , the presentation of a certain value reëxamined). Because of that, this method can not be used to change the attribute of an item that is being measured ; this method can only transform a unit of measurement. Balances translasi foreign exchange, for example, just turn ( restate ) denomination persediaan. not appraisement aktualnya. Gaap in the united states , assets cash measured based on jumiah owned on the scales. Receivable and debt expressed in numbers expected to be received or paid down at maturity. Obligations and other assets measured on the price holds when an item � � item is earned or incurred ( the price of historically ). But even so, some of them are measured based on the price prevailing on the financial statements ( walk ), the price of like a stock under the rules of a charge or market. In short , there are pertaining to dimension the time of money values this .

Translation method can be classified into two types of a method of using rate translasi singular to re- presenting balances in foreign currency into value equivalent in currency domestic or methods using many technical exchange rate.

1. Method single exchange rate

This method has long popular in europe , applying a rate exchange rates , namely rate current and the exchange rate to all assets and liabilities smoothly. Earnings and the load in foreign currency generally ditranslasikan by using rate the exchange rate prevailing at the time the outposts recognized. However to ease outposts is generally ditranslasikan by using weighted average coal rate exchange rates proper for that period.

2. A method of double exchange rate

A method of combining double the rupiah 's exchange rate and histories the exchange rate of the rupiah 's exchange rate of exchange is now in the process of translasi .

3. A method of kini-nonkini

Based on a method of kini-non now, smoothly assets and liabilities smoothly subsidiaries abroad ditranslasikan into currency exchange rate of reporting induk company was based on now. Assets and an obligation is not smoothly ditranslasikan based on the histories. The outposts report earnings of the burden (except depreciation and amortization) ditranslasikan based on average exchange rate prevailing in every month operating or based on the weighted average coal during the whole period of reporting.

4. Method moneter-nonmoneter

Method moneter-non monetary also use scheme classifications the balance you, to determine rate translasi proper. Assets and liabilities monetary ditranslasikan based on exchange rate today. Outposts non monetary assets fixed, long-term investment , and supplies investors ditranslasikan by using rate histories. Outposts report profit ioss ditranslasikan with using procedure equal to described for the concept kini-non now.

5. Temporal method

By using the method temporal, tranlasi currency is process of converting of measurement or repeated presentation of a certain value. This method not changing attribute a post measured , but only unit of measurement change.

EVALUATION AND SELECTION OF FOREIGN CURRENCY TRANSLATION METHOD

Based on method temporal,outposts monetary as cash flow,receivable, and debt be translated based on exchange rate today. Outposts monetary ditranslasikan with rate maintains the grounds of measurement at first. Specifically, assets whose value in the report foreign currency of cost histories, be translated based on exchange rate histories. Why ? This is because costs histories in foreign currencies be traanslated with rate exchange rates histories produced a histories in currency domestic.

Fourth method discussed at one time once used in united states and can be found to this day in various countries. In general, this method inflict results translasi foreign currencies quite different.

Third methods first ( method rate now, method kini-non-kini, and methods moneter-non-moneter ) used in acknowledges assets and obligation which is at risk of or able to be protected from risk foreign currency. Then, translation method consistently applied by taking into account the difference .

Which the best ?

Exchange rate now proper

So far, the rupiah 's exchange rate of exchange a term used in reference to a method of translasi histories or rate now. An average rate of profit often used in a report to the outposts of the burden. Some countries using the rupiah 's exchange rate of exchange for the transaction of different different. In this environment should be chosen few the rupiah 's exchange rate of exchange that is. Some of the recommended an alternative is :

1. the payment of a dividend rate of exchange

2. free market , exchange rate and

3. the penalty or preference that can be used , as in an activity related export import.