Foreign Currency Remeasurement: Monetary vs Nonmonetary Items
Remeasurement gets easier once you classify the account before choosing an exchange rate.
Monetary items
Cash, receivables, payables, and other fixed-unit monetary balances generally follow current-rate logic because settlement is fixed in currency units.
Nonmonetary items
Inventory, fixed assets, prepaid items, and similar balances can follow historical-rate logic depending on their measurement basis.
Why it matters
Remeasurement can create current-period foreign-exchange effects because monetary balances are exposed to exchange-rate changes differently from historical-cost nonmonetary balances.
Exam strategy
Classify the account, identify its measurement basis, and then choose the rate.
The takeaway
For remeasurement, classify the item before choosing the rate: monetary and nonmonetary balances do not automatically use the same exchange rate.
Related Summit resources
FAQ
Are cash and receivables monetary items?
Yes.
Are fixed assets usually nonmonetary items?
Yes.
What comes before selecting the exchange rate?
Classifying the account and its measurement basis.