Question 1

The effect of an increase in the exchange rate for Australian dollars relative to other major world currencies would include:

Accepted Answer

A)  Offshore debt would become more expensive. 
B)  The cost of importing goods from overseas would increase. 
C)  People buying goods overseas with Australian dollars would find the goods relatively cheaper than before. 
D)  The cost of Australian exports for overseas buyers would decrease. 
E)  All of the given answers. 
A)  Offshore debt would become more expensive. 
B)  The cost of importing goods from overseas would increase. 
C)  People buying goods overseas with Australian dollars would find the goods relatively cheaper than before. 
D)  The cost of Australian exports for overseas buyers would decrease. 
E)  All of the given answers. C

Question 2

Management may exercise its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.

Accepted Answer

A) True 
 B)False  False

Question 3

Examples of monetary items that may be denominated in foreign currencies include:

Accepted Answer

A)  Accounts payable and receivable, inventory, bank overdrafts. 
B)  Interest receivable and payable, loans, accounts payable. 
C)  Inventory, interest receivable, supplies, accounts payable. 
D)  Prepayments, loans, accounts payable, debentures payable. 
E)  All of the given answers. 
A)  Accounts payable and receivable, inventory, bank overdrafts. 
B)  Interest receivable and payable, loans, accounts payable. 
C)  Inventory, interest receivable, supplies, accounts payable. 
D)  Prepayments, loans, accounts payable, debentures payable. 
E)  All of the given answers. B

Question 4

Issues in relation to foreign currency arise when a reporting entity based in Australia has transactions with an overseas entity and the transaction is denominated in Australian currency:

Accepted Answer

A) True 
 B)False

Question 5

A foreign currency transaction shall be recorded on initial recognition in the:

Accepted Answer

A)  Presentation currency. 
B)  Local currency. 
C)  Foreign currency. 
D)  Functional currency. 
E)  None of the given answers. 
A)  Presentation currency. 
B)  Local currency. 
C)  Foreign currency. 
D)  Functional currency. 
E)  None of the given answers.

Question 6

The purpose of 'hedge accounting' is to recognise the offsetting effects on profit or loss of changes in the nominal values of the financial instrument and the hedging instrument:

Accepted Answer

A) True 
 B)False

Question 7

Apart from some limited exceptions, AASB 121 requires that exchange differences on monetary items shall be:

Accepted Answer

A)  Deferred and recognised when the associated asset or liability is realised or settled. 
B)  Treated as a reserve or provision against the associated monetary item. 
C)  Not recognised in the accounts until the monetary asset is received or monetary liability settled. 
D)  Recognised as income or an expense in the reporting period in which the exchange rates change. 
E)  None of the given answers. 
A)  Deferred and recognised when the associated asset or liability is realised or settled. 
B)  Treated as a reserve or provision against the associated monetary item. 
C)  Not recognised in the accounts until the monetary asset is received or monetary liability settled. 
D)  Recognised as income or an expense in the reporting period in which the exchange rates change. 
E)  None of the given answers.

Question 8

AASB 123 Borrowing Costs defines a qualifying asset as an asset that:

Accepted Answer

A)  takes a period of greater than twelve months to get ready for its intended use or sale. 
B)  takes a substantial period of time to get ready for its intended use or sale. 
C)  takes a period of greater than twelve months to complete. 
D)  takes a substantial period of time to complete. 
E)  is specified as "qualifying" under the Corporations Act. 
A)  takes a period of greater than twelve months to get ready for its intended use or sale. 
B)  takes a substantial period of time to get ready for its intended use or sale. 
C)  takes a period of greater than twelve months to complete. 
D)  takes a substantial period of time to complete. 
E)  is specified as "qualifying" under the Corporations Act.

Question 9

On 1 May 2005 Harry's Plastics Ltd acquires goods from a supplier in the US. The goods are shipped f.o.b. from America on 1 May 2005. The cost of the goods is US$1,500,000. The amount has not been paid at period end, 30 June 2005. Exchange rates are as follows:
 
Harry's Plastics Ltd uses a perpetual inventory system.
What entries are required at transaction date and reporting date (rounded to the nearest whole $A)?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 10

Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

Accepted Answer

A) True 
 B)False

Question 11

The following items are in the financial statements of Pirie Ltd as at 30 June 2012.
 
Which of the following combinations identify all items required to be translated at spot rate on 30 June 2012 as prescribed in AASB 112 "The effects of changes in foreign exchange rates"?

Accepted Answer

A)  I and II: 
B)  II and III; 
C)  II and IV 
D)  III and IV 
E)  I and III. 
A)  I and II: 
B)  II and III; 
C)  II and IV 
D)  III and IV 
E)  I and III.

Question 12

The effect of a fall in the exchange rate for Australian dollars relative to other major world currencies would include:

Accepted Answer

A)  People buying goods overseas with Australian dollars would find the goods relatively cheaper than before. 
B)  The cost of importing goods from overseas would increase. 
C)  The cost of offshore debt would increase. 
D)  The cost of importing goods from overseas would increase and the cost of offshore debt would increase. 
E)  All of the given answers. 
A)  People buying goods overseas with Australian dollars would find the goods relatively cheaper than before. 
B)  The cost of importing goods from overseas would increase. 
C)  The cost of offshore debt would increase. 
D)  The cost of importing goods from overseas would increase and the cost of offshore debt would increase. 
E)  All of the given answers.

Question 13

Emu Exports Ltd sold products to a New Zealand company. The sales contract was denominated in $NZ. On 1 October 2005, $NZ500,000 worth of products were sold with the terms f.o.b. shipping point and payment due 30 December 2005. A forward-exchange contract in which the bank agrees to purchase $NZ300,000 from Emu Exports on 30 December 2005 is entered into on 1 November 2005. The forward-exchange rate is $A1 = $NZ1.25. Other exchange rates are as follows:
 
What are the journal entries to record the above transactions from 1 October through to 30 December 2005 in accordance with AASB 121 (rounded to the nearest whole $A)?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 14

On 1 July 2005 Jarrets Ltd borrows £500,000 from a British bank at an interest rate of 8 per cent, repayable in pounds sterling (£) and with interest due on 30 June each year. The term of the loan is 3 years. On the same date Fitners Ltd borrows $A1 million from an Australian bank at an interest rate of 10 per cent. The term of the loan is 3 years. Jarrets and Fitners decide to swap their interest and principal obligations on 1 July 2005. Exchange rate information is as follows:
 
Both Jarrets and Fitners are Australian companies. What are the journal entries to record the swap for the period ended 30 June 2006 in Fitners Ltd's books (rounded to the nearest whole $A)?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 15

On 1 February 2004, Morinda Ltd completes a binding agreement to purchase a hydraulic lift from a manufacturer located in Germany. The cost of the equipment is €150,000. The construction of the lift is completed on 30 May 2004, and it is considered to be a qualifying asset according to AASB 123. The amount owing has not been paid by reporting date 30 June 2004. The following is information about the exchange rates:
 
What entries are required to record the transaction and subsequent events in accordance with AASB 121 (rounded to the nearest whole $A)?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 16

Which of the following items is within the scope of AASB 112 "The effects of changes in foreign exchange rates"?

Accepted Answer

A)  Translation of cash flows from foreign operations; 
B)  Presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency; 
C)  Hedge accounting for hedging a net investment in a foreign operation; 
D)  Presentation of an entity's financial statements in a foreign currency; 
E)  None of the given answers. 
A)  Translation of cash flows from foreign operations; 
B)  Presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency; 
C)  Hedge accounting for hedging a net investment in a foreign operation; 
D)  Presentation of an entity's financial statements in a foreign currency; 
E)  None of the given answers.

Question 17

AASB 121 requires that the initial recognition of a foreign currency transaction be:

Accepted Answer

A)  In the amount of the foreign currency. 
B)  At the closing rate at balance date. 
C)  At the rate the currency is expected to be exchanged at on the settlement date for the monetary asset or liability based on the current market price of futures contracts for the relevant foreign currency. 
D)  At the spot rate at the date of the transaction. 
E)  None of the given answers. 
A)  In the amount of the foreign currency. 
B)  At the closing rate at balance date. 
C)  At the rate the currency is expected to be exchanged at on the settlement date for the monetary asset or liability based on the current market price of futures contracts for the relevant foreign currency. 
D)  At the spot rate at the date of the transaction. 
E)  None of the given answers.

Question 18

On 1 May 2005 Harriet's Importers Ltd acquires goods from a supplier in Britain. The goods are shipped f.o.b. from England on 1 May 2005. The cost of the goods is £200,000. The amount has not been paid at period end, 30 June 2005. Exchange rates are as follows:
 
Harriet's Importers Ltd uses a perpetual inventory system.
What entries are required at transaction date and reporting date (rounded to the nearest whole $A)?

Accepted Answer

A)    
B)    
C)    
D)    
E)  None of the given answers. 
A)    
B)    
C)    
D)    
E)  None of the given answers.

Question 19

Inventory is an example of a monetary item.

Accepted Answer

A) True 
 B)False

Question 20

It seems pointless to distinguish between different types of hedges, as the accounting treatment is the same for all hedging - i.e., all changes in fair values of hedging instruments are recognised in profit or loss

Accepted Answer

A) True 
 B)False

Exam 35: Accounting for Foreign Currency Transactions

The effect of an increase in the exchange rate for Australian dollars relative to other major world currencies would include:

Management may exercise its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions.

Examples of monetary items that may be denominated in foreign currencies include:

Issues in relation to foreign currency arise when a reporting entity based in Australia has transactions with an overseas entity and the transaction is denominated in Australian currency:

A foreign currency transaction shall be recorded on initial recognition in the:

The purpose of 'hedge accounting' is to recognise the offsetting effects on profit or loss of changes in the nominal values of the financial instrument and the hedging instrument:

Apart from some limited exceptions, AASB 121 requires that exchange differences on monetary items shall be:

AASB 123 Borrowing Costs defines a qualifying asset as an asset that:

Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

The following items are in the financial statements of Pirie Ltd as at 30 June 2012. Which of the following combinations identify all items required to be translated at spot rate on 30 June 2012 as prescribed in AASB 112 "The effects of changes in foreign exchange rates"?

The effect of a fall in the exchange rate for Australian dollars relative to other major world currencies would include:

Which of the following items is within the scope of AASB 112 "The effects of changes in foreign exchange rates"?

AASB 121 requires that the initial recognition of a foreign currency transaction be:

Inventory is an example of a monetary item.

It seems pointless to distinguish between different types of hedges, as the accounting treatment is the same for all hedging - i.e., all changes in fair values of hedging instruments are recognised in profit or loss

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financ

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluation and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Lease

Set-Off and Extinguishment of Debt

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in E

Accounting for Share-Based Payments

Accounting for Income Taxes

Cash-Flow Statements

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After Balance Sheet Date

Segment Reporting

Related-Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transact

Further Consolidation Issues Ii: Accounting for Minority Interests

Further Consolidation Issues Iii: Accounting for Indirect Ownershi

Further Consolidation Issues Iv: Accounting for Changes in the Deg

Accounting for Equity Investments

Accounting for Equity Investments

Translation of the Accounts of Foreign Operations

Accounting for Corporate Social Responsibility

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