Unrealized exchange rate gain/loss

Hello Robert,Could you please give me an advice regarding unrealized foreign exchange rate gains/losses?As of 2008-end we have restated all closing balances of balance accounts where some liabilities/receivables are kept in non-functional currency using a final exchange rate. These Forex variances have impacted P&L.Should we recompute and restate per US GAAP also prepayments for CIP?(We are in new factory construction process and we pay a lot of equipments to our vendors in advance. These prepayments are booked onto CIP accounts, i. e. in Fixed Assets section).Thanks for your view and response,Jiří

Hi George,

Theoretically, there is no such thing as an “unrealized” foreign currency gain or loss.

Since an exchange rate is the ratio of exchange between two currencies, whatever that rate is now is what you will get / pay now. What you would have gotten / paid yesterday may have been relevant yesterday, but is irrelevant now.

But I’m pretty sure you didn’t post here to get a theoretical response about the essence of the exchange rate.

Under US GAAP (and IFRS for that matter), if you have a claim (receivable) or debt (payable) that will result in a foreign currency cash inflow / outflow in the future, it is a monetary item that is remeasured at the balance sheet date (using the exchange rate on that date).

I’m not exactly sure what you mean by “booking the differences to a CIP account” (since that account is used in contract accounting, which doesn’t sound like what you are doing), but if what you are taking about is a non-returnable deposit given to a vender for a non-monetary asset to be delivered in the future, it is not a monetary item and is not remeasured. You should go on disclosing that advance given at the rate in effect on the day the payment was made.

BTW, since your question was about US GAAP, I moved it here.

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