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9. A foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

The company then needs to amortize the ROU asset. Annual amortization expense is calculated as the ROU asset divided by the lease life. So, if the ROU asset at inception date was $60,000 and the lease life is 5 years, that results in amortization expense of $12,000 per year.

Any gains or losses arising out of such translation are to be recorded in the consolidated financial statements. All the translation adjustments arising from foreign currency translation are recorded in the shareholders' equity section in the parent company's consolidated balance sheet.

At the date a foreign currency transaction occurs, each asset, liability, revenue, expense, gain, or loss arising from the transaction is recorded in the functional currency of the recording entity using the exchange rate in effect at that date.

A lease modification includes adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term. IFRS 16's lease modification guidance can be summarised into the diagram overleaf.

Application to lease accounting Since a lessee's lease liability is a monetary item, the liability is translated using a current exchange rate at the end of each reporting period and foreign exchange differences are recognised in profit or loss.

ASC 842 will result in greater income statement volatility for operating leases denominated in a foreign currency than resulted under ASC 840 because ASC 842 requires the lease liability to be remeasured to the lessee's functional currency each period using the current exchange rate, while remeasuring the right-of-use ...