Septiembre 2011

Foreign currency

Foreign currency

Foreign currency transactions

Foreign currency transactions are transactions denominated or which have to be settled in a currency other than the entity’s functional currency. In general, it is assumed that the functional currency of the entities domiciled in Spain is the euro.

Translation

Foreign currency items are translated to the functional currency as follows:

• 
  They are translated, on initial recognition, at the exchange rate prevailing at the transaction date.
  

• 
  Subsequently,
  

– Monetary items are translated at the exchange rate prevailing at the end of the reporting period (e.g. receivables denominated in foreign currency).

Both exchange losses and exchange gains arising on translation are recognised in profit or loss in the year in which they arise.

Foreign currency

• 
  Non-monetary items measured at their historical cost are translated using the exchange rates prevailing at the date of the transaction (e.g. non-current assets of foreign sales offices), irrespective of any possible impairment test.
  

• 
  Non-monetary items measured at fair value are translated using the exchange rates prevailing at the date when the fair value was determined, recognising the effect in equity or in profit or loss, as appropriate, on the basis of the nature of the related item.
  

There are also specific rules for the translation of financial statements to the presentation currency when, exceptionally, the functional currency is a currency other than the euro.

Income tax

(amended by Royal Decree 1159/2010)

Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income).

Current tax assets and liabilities

The current income tax expense is the amount payable by the company as a result of income tax settlements for a given year.

Tax credits and tax loss carryforwards from prior years effectively offset in the current year reduce the current income tax expense.

Deferred tax assets and liabilities

Temporary differences arise from the different measurement of assets and liabilities and certain of an entity’s own equity instruments for accounting and tax purposes, insofar as they have an impact on the future tax burden.

Deferred tax liabilities are generally recognised for all taxable temporary differences, unless they arise from: