Appendix F
Illustrations for Separately Calculating and Disclosing the Foreign Currency Element of Realized and Unrealized Gains and Losses

This appendix is nonauthoritative and is included for informational purposes only.

As discussed in paragraphs 1–2 of FASB Accounting Standards Codification (ASC) 946-830-45 each transaction denominated in a foreign currency can initially be measured only in that currency. The ongoing revaluation of investments and receivables or payables representing unsettled foreign currency transactions should be classified as unrealized foreign currency gain or loss. On settlement (when there is actual cash flow), a realized foreign currency gain or loss should be recorded. Any differences between originally recorded amounts and currently consummated or measured amounts in the reporting currency are a function of both of the following factors: (a) foreign exchange rate changes and (b) changes in market prices.

Illustrations A and B apply if separate disclosures of the foreign currency elements of unrealized and realized gains and losses on investments are chosen by the reporting entity.

A. Securities Purchases and Sales

As discussed in FASB ASC 946-830-45-20, if separate reporting of foreign currency gains and losses on sales of securities is chosen by the reporting entity, the realized fair value gain or loss on the sale of the security should be measured as the difference between the sale proceeds in foreign currency and the original cost in foreign currency translated at the spot rate on the sale trade date. The realized foreign currency gain or loss should be measured as the difference between the original cost in foreign currency translated at the spot rate on the sale trade date and the historical functional currency cost. Illustration A shows the calculation of the market and currency components of realized gains and losses on the sale of an investment.

As stated in FASB ASC 946-830-45-21, the sale of a security results in a receivable for the security sold. See illustration F for the calculation of realized gain/loss related to the change in a foreign currency denominated receivable for securities sold from the trade date to the settlement date.

B. Securities — Subsequent Measurement at Fair Value

As discussed in paragraphs 16–17 of FASB ASC 946-830-45, the fair value of securities should initially be determined in the foreign currency and translated at the spot rate on the purchase trade date. The unrealized gain or loss between the original cost (translated on the trade date) and the fair value (translated on the valuation date) comprises both of the following elements: (a) changes in the fair value of securities before translation and (b) movement in foreign currency rate. If separate disclosure of the foreign currency gain and losses is chosen, the changes in the fair value of securities before translation should be measured as the difference between the fair value in foreign currency and the original cost in foreign currency translated at the spot rate on the valuation date. The effect of the movement in the foreign exchange rate should be measured as the difference between the original cost in foreign currency translated at the current spot rate and the historical functional currency cost. Consistent with the presentation in FASB ASC 946-830-55-4, Illustration B shows the calculation of the market and currency components of unrealized gains and losses on an investment.

C. Other Assets/Liabilities — FX Subsequent Measurement at Fair Value

As discussed in FASB ASC 946-830-45-23 all receivables and payables that are denominated in a foreign currency and that may relate to income or expense, or to securities sold or purchased, should be recorded on the trade date at the spot rate and should be translated into the functional currency each valuation date at the spot rate on that date. The difference between that amount and the functional currency amount that was recorded at the trade date spot rate for receivables for securities sold (or payables for securities purchased) is unrealized foreign currency gain or loss. Consistent with the presentation in FASB ASC 946-830-55-5, Illustration C shows the subsequent remeasurement of a receivable for securities sold between trade date and settlement date.

D. Changes Between Trade and Settlement Dates¹

As stated in paragraphs 21 and 23 of FASB ASC 946-830-45, all receivables and payables that are denominated in a foreign currency and that may relate to income or expense, or to securities sold or purchased, should be recorded on the trade date at the spot rate. On the settlement date, the difference between the recorded receivable (or payable) amount and the actual foreign currency received (or paid) converted into the functional currency at the spot rate should be recognized as a realized foreign currency gain or loss. Consistent with the presentation in paragraphs 6 and 8 of FASB ASC 946-830-55, Illustrations D and F show the calculation of realized gain or loss related to the change in a foreign currency denominated payable for securities purchased and receivable for securities sold, respectively, from the trade date to the settlement date.

E. Settlement Against Foreign Currency Cash Balances

As discussed in FASB ASC 946-830-45-8 the disbursement of a foreign currency should result in a realized foreign currency gain or loss that is the difference between the functional currency equivalent of the foreign currency when it was acquired and the foreign currency disbursement translated at the spot rate on the disbursement date. Consistent with the presentation in FASB ASC 946-830-55-7, Illustration E shows the calculation of realized foreign currency gains and losses in the settlement against foreign currency cash balances.

F. Sale of XYZ — Trade Date

Consistent with the presentation in FASB ASC 946-830-55-8, Illustration F shows the calculation of realized gain/loss related to the change in a foreign currency denominated receivable for securities sold from the trade date to the settlement date.

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