Question 1

In determining an entity's functional currency,factors to be considered include which of the following?

Accepted Answer

A) the currency of the country whose competitive forces and regulations mainly determine the sales price of its goods and services 
B) the currency that mainly influences sales prices for goods and services 
C) the currency in which receipts from operating activities are usually retained 
D) all of the above 
A) the currency of the country whose competitive forces and regulations mainly determine the sales price of its goods and services 
B) the currency that mainly influences sales prices for goods and services 
C) the currency in which receipts from operating activities are usually retained 
D) all of the above D

Question 2

Engaging in activities that avoid or minimise possible adverse financial effects arising from exchange rate movements is known as:

Accepted Answer

A) consolidation 
B) speculating 
C) insurance 
D) hedging 
A) consolidation 
B) speculating 
C) insurance 
D) hedging D

Question 3

Explain the AASB 121 requirements for the translation of financial statements of foreign operations.

Accepted Answer

The second major way in which an entity can conduct foreign activities is by conducting foreign operations via a foreign division,branch,subsidiary,associate,joint venture or similar arrangement.In these situations,the foreign operation's functional currency will not be the Australian dollar.The problem is therefore how to incorporate the results and financial position of the foreign operation with those of the Australian reporting entity which,of course,will usually have the Australian dollar as its presentation currency.The financial statements of those foreign operations will therefore need to be translated from the foreign functional currency into the Australian presentation currency so they can then be consolidated for purposes of preparing the Australian economic entity's accounts.Determination is required of the exchange rates to be used in translating the individual income,expense,asset,liability and equity items from the foreign functional currency into the Australian presentation currency.In this regard,AASB 121 para.39 specifies the following: The results and financial position of an entity ...shall be translated into a different presentation currency using the following procedures: (a)assets and liabilities for each statement of financial position presented shall be translated at the closing rate at the date of that statement of financial position; (b)income and expenses for each statement of comprehensive income or separate income statement presented (i.e.including comparatives)shall be translated at exchange rates at the dates of the transactions; and (c)all resulting exchange differences shall be recognised in other comprehensive income.

Question 4

A hedge is designed to cover overall net actual or anticipated currency exposures,such as might arise from the activities of a branch or subsidiary of the entity located in another country is referred to as a/an:

Accepted Answer

A) fixed hedge 
B) general hedge 
C) exposure hedge 
D) specific hedge 
A) fixed hedge 
B) general hedge 
C) exposure hedge 
D) specific hedge

Question 5

Which of the following statements is incorrect?

Accepted Answer

A) borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds 
B) a qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale 
C) financial assets and inventories that are manufactured or otherwise produced over a short period of time,and assets that are ready for their intended use or sale when acquired,are not qualifying assets 
D) financial assets and inventories that are manufactured or otherwise produced over a short period of time,and assets that are ready for their intended use or sale when acquired,are qualifying assets 
A) borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds 
B) a qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale 
C) financial assets and inventories that are manufactured or otherwise produced over a short period of time,and assets that are ready for their intended use or sale when acquired,are not qualifying assets 
D) financial assets and inventories that are manufactured or otherwise produced over a short period of time,and assets that are ready for their intended use or sale when acquired,are qualifying assets

Question 6

Depending on the circumstances,AASB 123 considers which of the following are qualifying assets?

Accepted Answer

A) power generation facilities 
B) investment properties 
C) intangible assets 
D) all of the above 
A) power generation facilities 
B) investment properties 
C) intangible assets 
D) all of the above

Question 7

Which of the following statements is incorrect?

Accepted Answer

A) the presentation currency is the currency in which the financial statements are presented 
B) the functional currency of the entity or foreign operation will normally be obvious to management of an entity or foreign operation. 
C) individual entities and foreign operations must determine their functional currency 
D) the functional currency is the currency in which the financial statements are presented 
A) the presentation currency is the currency in which the financial statements are presented 
B) the functional currency of the entity or foreign operation will normally be obvious to management of an entity or foreign operation. 
C) individual entities and foreign operations must determine their functional currency 
D) the functional currency is the currency in which the financial statements are presented

Question 8

A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency,including transactions arising when an entity:

Accepted Answer

A) borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency 
B) acquires or disposes of assets,or incurs or settles liabilities,denominated in a foreign currency 
C) buys or sells goods or services whose price is denominated in a foreign currency 
D) all of the above 
A) borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency 
B) acquires or disposes of assets,or incurs or settles liabilities,denominated in a foreign currency 
C) buys or sells goods or services whose price is denominated in a foreign currency 
D) all of the above

Question 9

Define qualifying assets and explain the accounting requirements relating to them.

Accepted Answer

Qualifying asset is defined in AASB 123

Question 10

The currency of the primary economic environment in which the entity operates is known as the:

Accepted Answer

A) functional currency 
B) primary currency 
C) environment currency 
D) operational currency 
A) functional currency 
B) primary currency 
C) environment currency 
D) operational currency

Question 11

According to AASB 121,assets and liabilities for each statement of financial position presented shall be translated at:

Accepted Answer

A) exchange rates at the dates of the original transactions 
B) the closing rate at the date of that statement of financial position 
C) the spot rate at the start of the financial year 
D) none of the above 
A) exchange rates at the dates of the original transactions 
B) the closing rate at the date of that statement of financial position 
C) the spot rate at the start of the financial year 
D) none of the above

Question 12

Explain the requirements in AASB 121 for subsequent adjustments to the recording of foreign currency transactions.

Accepted Answer

As exchange rates tend to move over time

Question 13

Examples of monetary assets include:

Accepted Answer

A) cash 
B) loans receivable 
C) debtors 
D) all of the above 
A) cash 
B) loans receivable 
C) debtors 
D) all of the above

Question 14

An asset that necessarily takes a substantial period of time to get ready for its intended use or sale is known as a/an:

Accepted Answer

A) non- current asset 
B) qualifying asset 
C) period asset 
D) none of the above 
A) non- current asset 
B) qualifying asset 
C) period asset 
D) none of the above

Question 15

Foreign operations can be conducted via which of the following?

Accepted Answer

A) foreign division 
B) foreign joint venture 
C) foreign subsidiary 
D) all of the above 
A) foreign division 
B) foreign joint venture 
C) foreign subsidiary 
D) all of the above

Question 16

The ratio of exchange for immediate delivery of currencies to be exchanged is known as an:

Accepted Answer

A) exchange rate 
B) interest rate 
C) exchange ratio 
D) none of the above 
A) exchange rate 
B) interest rate 
C) exchange ratio 
D) none of the above

Question 17

For translation of foreign currency transactions,AASB 121 requires use of the:

Accepted Answer

A) spot exchange rate at the date of the foreign currency transaction 
B) spot exchange rate at the start of the financial year 
C) spot exchange rate at the end of the financial year 
D) none of the above 
A) spot exchange rate at the date of the foreign currency transaction 
B) spot exchange rate at the start of the financial year 
C) spot exchange rate at the end of the financial year 
D) none of the above

Question 18

The main difficulties in accounting for foreign currency transactions,investments and activities arise because:

Accepted Answer

A) transactions occur over a period,yet the need to report on those transactions occurs at a different time 
B) some transactions occur over lengthy periods of time,during which there may be substantial exchange rate movements 
C) foreign exchange transactions may often involve additional parties 
D) all of the above 
A) transactions occur over a period,yet the need to report on those transactions occurs at a different time 
B) some transactions occur over lengthy periods of time,during which there may be substantial exchange rate movements 
C) foreign exchange transactions may often involve additional parties 
D) all of the above

Question 19

Which of the following statements is correct?

Accepted Answer

A) hedging transactions involve taking a position in a foreign currency with the aim of profiting from movements in exchange rates for that currency 
B) hedging transactions can only relate to specific commitments 
C) hedging transactions can relate to specific commitments or general commitments 
D) hedging transactions can only relate to general commitments 
A) hedging transactions involve taking a position in a foreign currency with the aim of profiting from movements in exchange rates for that currency 
B) hedging transactions can only relate to specific commitments 
C) hedging transactions can relate to specific commitments or general commitments 
D) hedging transactions can only relate to general commitments

Question 20

Explain the AASB 121 requirements for the initial recording of foreign currency transactions.

Accepted Answer

For translation of foreign currency tran

Exam 18: Accounting for Foreign Currency

In determining an entity's functional currency,factors to be considered include which of the following?

Engaging in activities that avoid or minimise possible adverse financial effects arising from exchange rate movements is known as:

Explain the AASB 121 requirements for the translation of financial statements of foreign operations.

A hedge is designed to cover overall net actual or anticipated currency exposures,such as might arise from the activities of a branch or subsidiary of the entity located in another country is referred to as a/an:

Which of the following statements is incorrect?

Depending on the circumstances,AASB 123 considers which of the following are qualifying assets?

Which of the following statements is incorrect?

A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency,including transactions arising when an entity:

Define qualifying assets and explain the accounting requirements relating to them.

The currency of the primary economic environment in which the entity operates is known as the:

According to AASB 121,assets and liabilities for each statement of financial position presented shall be translated at:

Explain the requirements in AASB 121 for subsequent adjustments to the recording of foreign currency transactions.

Examples of monetary assets include:

An asset that necessarily takes a substantial period of time to get ready for its intended use or sale is known as a/an:

Foreign operations can be conducted via which of the following?

The ratio of exchange for immediate delivery of currencies to be exchanged is known as an:

For translation of foreign currency transactions,AASB 121 requires use of the:

The main difficulties in accounting for foreign currency transactions,investments and activities arise because:

Which of the following statements is correct?

Explain the AASB 121 requirements for the initial recording of foreign currency transactions.

The Nature and Environment of Companies

Company Formation, Share Capital and Debt Securities

Reserves and Profit Distribution

Published Financial Statements

Accounting for Company Income Tax

Property, Plant and Equipment

Leases

Intangible Assets

Business Combinations

Impairment of Assets

Additional Accounting Standards and Disclosures

Principles of Consolidation

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interests

Consolidation: Indirect Non-Controlling Interests

Accounting for Associates

Accounting for Joint Ventures

Capital Reorganisation

External Administration, Including Liquidation

Key Issues in Australian Corporate Governance

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