 Today's topic is foreign currency transactions. And in foreign currency means that you are dealing in foreign currency also. Not buying, selling foreign currency, but your business is such that you involve in currency business. You are importing or exporting, and that you are doing it in dollars, or in feelings, or in yen, or whatever. So if you involve any foreign currency business, then you need to see how they are going to be reported in your home currency. Learning outcome, after going through the students, will be able to understand the foreign currency transaction, how a business can enter into a foreign currency transaction. They will understand the difference in functional currency and presentation currency. Functional currency, both ages may occur business chalrai, buying or selling or a foreign functional currency. Presentation currency, which you have to report, which you have to balance sheet income statement. There will be a position to learn foreign exchange rates to be used to translate the foreign currency. We have to study the rates, which rates we have to use to translate the foreign currency into local currency. They will learn how to calculate loss again on translation of foreign operations. Now, a company can enter in foreign currency transactions through imports or exports. You are selling, exporting, or you are ordering, so you are importing, and you have to pay in dollars or in yen. So that foreign currency, that transaction, you will record. The simple thing is, if you are in Pakistan, then you have to record the transaction in the park rupee. You cannot do this, because the rest of the work is going on in rupees, and when it comes to dollar or pound, then you have to write a dollar or pound there. No, it is not possible. You will have to convert it into a local currency, which is called a functional currency, called a reporting currency. You will have to convert it into that. Putting up a branch, it can also be that you have put up a branch. Now look, the branch is going on the business side. What will they do to you? End of the month or end of the year, they will send you a trial balance. First of all, they are coming to the US dollar. So you have to translate it into the park rupee. Now question is, what rate will be used? How will we translate it? This means that they have to record the transaction in their books, which is in a different currency to their own currency. IS-21 explains the standard accounting practices for translating foreign transactions and foreign operations, and for presenting the exchange difference that right. Obviously, when different rates are used for different items, then your trial balance will be out. The difference will either be lost or gain. And this loss and gain will go straight away in your income statement, because that's how it is. Now, so far, rates are concerned. There is one historic rate, which we call $10,000. First of all, today you have done sales of $10,000. So you have to debit the receivables and credit the sales. Not $10,000. If the current difference is $150, then you have to multiply $10,000 and book the receivable and credit the sales. Now the question is, when is the money coming? When the money is coming, the rate may be different. So you can get more and less. If you are getting more on conversion and on translation, then you can say that we are gaining and if you are getting less, the rate fluctuates. So if you are getting a better rate, then you are getting more profit. And if the rate goes down, then you may lose. Now, it is also known as temporal rate or spot rate. Normally, all transactions are at the same rate and record at the same rate. That is, record at the historic rate. Initially, all transactions will be recorded at the same rate. Then closing rate. That is, when the year ends, when you have to make accounts, then the rate will come at the closing rate. You know that the stock, the foreign currency business, the mint by mint rate is changing. And over the year, there is a big difference. So we have to see that when we have to make a balance sheet or accounts, then what is the rate at that time? Generally, we use that rate for the sake of preparing the accounts. The average rate is also because if you have a complete trial balance, then your income, expense, assets, libraries, equity is also there. So as far as revenue and expense is concerned, it is allowed to use an average rate. Now how does the average rate come out? Normally, this is not the opening plus closing divide by two. This is not the case. If there are 12 months in this, then we take the end of rate of 12 months and then take another rate. But it is allowed by the, it is given in exam, it is really given. Foreign operation is an entity that is a subsidiary associate joint venture or a branch of operation entity. I have told you that it is only in this that you open a branch or you are a subsidiary. So whatever investments you have made there, of course, are in foreign currency. You have to bring it to your books. So to question rise, you have to translate it to bring it to your books. Because it is in a pound or a dollar or a shattering. So you have to convert it into rupees. So you have to use a rate. And that rate will be your closing rate. Functional currency is a currency of primary economic environment in which the entity operates. Where you are doing business, the currency of that country is your functional currency. And presenting currency, presentation currency, in which you have to make accounts, this is also a possibility that your functional currency may be a pound and you are a subsidiary of an American company. So you have to make an American company and send it. Although then the American company will bring your things to their functional currency. So the presented currency is different. And the functional currency is different. Functional means that the place you are working, the currency of that country. And presenting means if you want to present in another currency, if you want to convert the dollar into rupees, you can present it. Another issue is that there are two types of items. One is monetary item where there is cash, bank air, receivables, payables and loans. At closing rate, at the balance sheet rate, you have to translate them into closing rate. And then money comes. Monetary is fixed money. If there is so much dollar, you have to pay so much money instead of this dollar. So for this, you have to use the closing rate. And there is also an issue that when you have recorded, the rate was different. When you are settling it, the rate is different. So again profit or loss, gain or loss you have to record. And then historic rate. The day you have bought it or sold it, non-monetary item in which cash is not certain that you have to pay so much money or dollar, no. These are non-monetary items. Do not translate, but leave it on the balance sheet as original translation at the date the transaction recorded. When you have bought or sold it, the rate of that day and then there is no change. Later it happens that we take it to cost model. That is, we do not change it. But if you use fair value model or you use the revolution model, then there is a different issue. But we assume that we take it to cost model. In case of foreign operation, any gain or loss shown separately item in the equity exchange different reserve. If there is foreign operation, then do not take it in the income statement. Rather, you show it in your balance sheet separately in the equity section. On disposal of foreign operation, any exchange difference should be recycled and made part of the income statement. And if you have closed your operation, when you close it, the loss or gain that is coming will be reported in your income statement. Thank you very much.