According to para.4 of Accounting (Standard) Regulations 21 “Effects of Changing in Foreign Exchange Rates” approved by Order of the Ministry of Finance of Ukraine of 10.08.2000, № 193 (hereinafter - AR 21) Foreign exchange rate difference – is the difference between evaluations of equal number of foreign currency units at different exchange rates. Foreign exchange rate is the rate of monetary unit of Ukraine fixed by the NBU to monetary unit of another country.In other words, exchange rate difference –is the difference between the NBU rate on certain dates.
Financial Accounting of exchange differences
Exchange differences determine only monetary balance sheet items denominated in foreign exchange. Monetary items are considered to be balance sheet items on monetary funds, and also on such assets and liabilities to be received or paid in fixed (or determined) amount of money or their cash equivalents. According to para.4 AR 21, other items than monetary balance sheet items are referred to as non-monetary.
Determination of exchange rate differences on monetary items in foreign currency is conducted (para. 8 AR 21):
- or at the balance sheet date;
- or at the date of business transaction within it, or under all item (in accordance with the accounting policies).
Exchange differences of reassessment of monetary funds in foreign currency and other monetary items of business operations should be reflected in other operating incomes (expenses).
The organization should reflect revenue in accounting if the change of the NBU rate increased assets (monetary funds in foreign currency) or accounts receivables or decreased our accounts receivables. This positive foreign exchange difference should be reflected in accordance with CR of subsidiary account 714 “Revenue from operating exchange rate difference”.
Sometimes it happens that a change of the NBU rate leads to negative exchange rate effects - attrition of assets (monetary funds in foreign currency) or accounts receivables or an increase in accounts payable to suppliers. Then the company should reflect expenses for GD of subsidiary account 945 “Loses from operating exchange rate difference”.
Tax Accounting: the income tax
Since 01.01.2015 according to para.134.1 of the Tax Code of Ukraine of 02.12.2010, № 2755-VІ (hereinafter - TCU) the subject to income tax is income from a source of origin from Ukraine and abroad, which is to be determined by adjusting (increase or decrease) of financial result to taxation (income or loss) determined in the financial statements of the company in accordance with National accounting regulations (standards) or International financial reporting standards (IFRS), on tax differences arising.
If the income of the company for the reporting period does not exceed UAH 20 million, it is allowed not to make adjustment of the financial result determined in accordance with AR or IFRS.
Today there are no any certain regulations in section III of the TCU that would provide for peculiarities of accounting of exchange rate differences or their adjustment. Therefore, exchange differences (i.e. incomes / expenses from exchange rate differences) should be reflected under the rules of accounting in the income tax accounting.
