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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
Updated
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Accounts drawn up in a foreign currency: FA 2009: the ‘appropriate exchange rate’

Meaning of appropriate exchange rate

This guidance applies to all accounting periods beginning on or after 29 December 2007

When translating foreign currency profits or losses into sterling, that translation must be made at the ‘appropriate exchange rate’.

The ‘appropriate exchange rate’ is defined at FA93/S92(4) as being:

  • ‘The average exchange rate for the accounting period, or
  • Where the amount to be translated relates to a single transaction, an appropriate spot rate of exchange for the transaction, or
  • Where the amount to be translated relates to more than one transaction, a rate of exchange derived on a just and reasonable basis from appropriate spot rates of exchange for those transactions.’

For most companies this will mean that the profits and losses will be translated at the average exchange rate for the period. However, if there is more than one transaction, a company can choose to use a just and reasonable method of translating individual transactions at the spot rate for each transaction.

Where there is only one transaction in the year there is no choice of translation method. The single transaction must be translated at the spot rate on the day of that transaction.