conceptual issue with CTA and translation

[h21]

Hi all, while I understand we go through the balancing approach and go back to different statement to figure out NI before and after remeasurement in Temporal method and R/E difference in current method, my brain got jammed during the process, on B/S, and I/S there is clearly number of R/E and N/I stated, yet we didnt just translate that based on the interest rate.
Is that because the original R/E or NI in foreign currency doesnt include the translation, so if you directly translate those from the foreign currency you would miss out this important part? so CTA is like a mixed bag of all the difference accumulated in the FX translation process and we decide to give it to R/E in current method on B/S and NI in temporal method on I/S? If we convert RE or NI based on stated exchange rate, we miss out on this mixed bag?
An other question I get confused is is there a way to define for sure monetary/nonmonetary asset?

 

[thalesian]

Let’s start with the easy question first on monetary/nonmontery assets.
It is snuck in a bit early in the readings, but on p. 233 of the CFAI books spell it out – “monetary items are cash and receivables (payables) that are to be received (paid) in a fixed number of currency units. Non-monetary assets include inventory, fixed assets, and intangibles, and non-monetary liabilities included deferred revenue.”
Given that reading, my advice is to treat cash and accounts receivable as monetary and the rest as non-monetary.
One area to watch out for is Inventory (you can see this in the blue box examples). While most certainly a current asset, it is importantly non-monetary. This is key and you should understand how this might impact a current ratio given a foreign currency adjustment.
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For fullness, the CFAI’s interpretation squares with specific text of IAS 21:
The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity’s own equity instruments or a variable amount of assets in which the fair value to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item.
Conversely, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services (e.g. prepaid rent); goodwill; intangible assets; inventories; property, plant and equipment; and provisions that are to be settled by the delivery of a non-monetary asset.