Question 1

When translating non-monetary liabilities into the functional currency,the translation rate used is:

Accepted Answer

A) the rate at date of valuation. 
B) the closing rate. 
C) the spot rate. 
D) the average rate. 
A) the rate at date of valuation. 
B) the closing rate. 
C) the spot rate. 
D) the average rate. A

Question 2

Exchange differences arising from translation to the presentation currency are not recognised in profit or loss because the changes in exchange rates have little or no direct effect on the present and future cash flows from operations.

Accepted Answer

A) True 
 B)False  True

Question 3

Exchange differences resulting from the translation of foreign operations to presentation currency are shown:

Accepted Answer

A) in the 'retained earnings' section of equity. 
B) in the 'general reserve' section of equity. 
C) in the 'asset revaluation reserve' section of equity. 
D) none of the given answers. 
A) in the 'retained earnings' section of equity. 
B) in the 'general reserve' section of equity. 
C) in the 'asset revaluation reserve' section of equity. 
D) none of the given answers. D

Question 4

When a parent entity has an overseas subsidiary the first task before consolidation is to:

Accepted Answer

A) translate the financial statements from the functional currency to the presentation currency. 
B) translate the financial statements from the presentation currency to the functional currency. 
C) determine the functional currency of the overseas subsidiary. 
D) determine the functional currency of the parent entity. 
A) translate the financial statements from the functional currency to the presentation currency. 
B) translate the financial statements from the presentation currency to the functional currency. 
C) determine the functional currency of the overseas subsidiary. 
D) determine the functional currency of the parent entity.

Question 5

Aus Co Ltd has a foreign operation based in New Zealand.The following information was extracted from the foreign operation's financial statements for the period ended 30 June 2015: $$\begin{array} { | l | r | } 
\hline & \text { \$NZ 000 } \
\hline \text { Machinery (purchased 1 July 2013, revalued 1 June 2015) } & 13000 \
\hline \text { Inventory on hand (purchased last quarter 2015) } & 9800 \
\hline \text { Depreciation expense-machinery } & 700 \
\hline \text { Land (purchased 1 July 2013) } & 75000 \
\hline
\end{array}$$ Exchange rate information is: $$\begin{array} { | l | l | } 
\hline 1 \text { July } 2013 & \text { A\$1.00 } = \$ N Z 1.1255 \
\hline \text { Average for year ended } 30 \text { June } 2015 & \text { A\$1.00 } = \$ N Z 1.2135 \
\hline 1 \text { June } 2015 & \text { AS1.00 } = \$ N Z 1.1024 \
\hline \text { Last quarter } 2015 & \text { A\$1.00 } = \$ N Z 1.2503 \
\hline 30 \text { June } 2015 & \text { AS1.00 } = \$ N Z 1.3250 \
\hline
\end{array}$$ What is the amount at which each item will be translated (rounded to the nearest A$)?

Accepted Answer

A)  $$\begin{array} { | l | r | } 
\hline & \text { A\$ } \
\hline \text { Machinery } & 17225000 \
\hline \text { Inventory on hand } & 1298500 \
\hline \text { Depreciation expense-machinery } & 849450 \
\hline \text { Land } & 99375000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | } 
\hline & { \text { AS } } \
\hline \text { Machinery } & 9811321 \
\hline \text { Inventory on hand } & 9396226 \
\hline \text { Depreciation expense-machinery } & 576844 \
\hline \text { Land } & 56603774 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | } 
\hline &{ \text { AS } } \
\hline \text { Machinery } & 14331200 \
\hline \text { Inventory on hand } & 12252940 \
\hline \text { Depreciation expense-machinery } & 771680 \
\hline \text { Land } & 84412500 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | } 
\hline & \text { AS } \
\hline \text { Machinery } & 11792453 \
\hline \text { Inventory on hand } & 7838119 \
\hline \text { Depreciation expense-machinery } & 634978 \
\hline \text { Land } & 66637050 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | } 
\hline & \text { A\$ } \
\hline \text { Machinery } & 17225000 \
\hline \text { Inventory on hand } & 1298500 \
\hline \text { Depreciation expense-machinery } & 849450 \
\hline \text { Land } & 99375000 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | } 
\hline & { \text { AS } } \
\hline \text { Machinery } & 9811321 \
\hline \text { Inventory on hand } & 9396226 \
\hline \text { Depreciation expense-machinery } & 576844 \
\hline \text { Land } & 56603774 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | } 
\hline &{ \text { AS } } \
\hline \text { Machinery } & 14331200 \
\hline \text { Inventory on hand } & 12252940 \
\hline \text { Depreciation expense-machinery } & 771680 \
\hline \text { Land } & 84412500 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | } 
\hline & \text { AS } \
\hline \text { Machinery } & 11792453 \
\hline \text { Inventory on hand } & 7838119 \
\hline \text { Depreciation expense-machinery } & 634978 \
\hline \text { Land } & 66637050 \
\hline
\end{array}$$

Question 6

In the process of consolidating the translated financial statements of a foreign operation,what will be the form of the journal entry required to eliminate the foreign currency effect of a purchase of inventory by the subsidiary from the parent entity? Assume that the value of the foreign currency of the foreign operation has increased relative to the reporting currency.

Accepted Answer

A)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Foreign currency loss (P\&L) } & \mathrm{X} & \
\hline \mathrm{Cr} & \text { Cost of goods sold } & & \mathrm{X} \
\hline
\end{array}$ 
B)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Inventory } & \mathrm{X} & \
\hline \mathrm{Cr} & \text { Foreign currency gain (P\&L) } & & \mathrm{X} \
\hline
\end{array}$ 
C)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Inventory } & \mathrm{X} & \
\hline \mathrm{Cr} & \text { Foreign currency translation reserve } & & \mathrm{X} \
\hline
\end{array}$ 
D)  $$\begin{array} { | l | l | r | r | } 
\hline \text { Dr } & \text { Foreign currency translation reserve } & \mathrm { X } & \
\hline \mathrm { Cr } & \text { Inventory } & & \mathrm { X } \
\hline
\end{array}$$ 
A)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Foreign currency loss (P\&L) } & \mathrm{X} & \
\hline \mathrm{Cr} & \text { Cost of goods sold } & & \mathrm{X} \
\hline
\end{array}$ 
B)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Inventory } & \mathrm{X} & \
\hline \mathrm{Cr} & \text { Foreign currency gain (P\&L) } & & \mathrm{X} \
\hline
\end{array}$ 
C)  $\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Inventory } & \mathrm{X} & \
\hline \mathrm{Cr} & \text { Foreign currency translation reserve } & & \mathrm{X} \
\hline
\end{array}$ 
D)  $$\begin{array} { | l | l | r | r | } 
\hline \text { Dr } & \text { Foreign currency translation reserve } & \mathrm { X } & \
\hline \mathrm { Cr } & \text { Inventory } & & \mathrm { X } \
\hline
\end{array}$$

Question 7

IAS 21 specifies that post-acquisition movements in equity other than retained profits or accumulated losses are translated at:

Accepted Answer

A) the spot rate. 
B) the forward rate. 
C) the market rate. 
D) none of the given answers. 
A) the spot rate. 
B) the forward rate. 
C) the market rate. 
D) none of the given answers.

Question 8

The foreign exchange exposure of the parent entity in relation to its foreign operation relates to the net cash flows of the investment in the operation.

Accepted Answer

A) True 
 B)False

Question 9

As prescribed in IAS 21,when remeasuring financial statements of foreign operations to functional currency,which of the following identifies all items to be re-measured at historic rates?

Accepted Answer

A) cash, inventory and accounts receivable 
B) payables, long-term loan and unearned revenue 
C) inventory, goodwill, property plant and equipment 
D) accounts receivable, accounts payable and accrued expenses 
A) cash, inventory and accounts receivable 
B) payables, long-term loan and unearned revenue 
C) inventory, goodwill, property plant and equipment 
D) accounts receivable, accounts payable and accrued expenses

Question 10

When translating the financial statements of a foreign operation to presentation currency,IAS 21 requires any gain or loss on translation of the financial statements to be:

Accepted Answer

A) recognised as a revenue or expense in the statement of comprehensive income. 
B) transferred to a reserve in the equity section of the statement of financial position. 
C) deferred and amortised over a period not greater than 20 years. 
D) written off against the non-monetary assets of the foreign operation with any balance remaining recognised as a revenue or expense in the period. 
A) recognised as a revenue or expense in the statement of comprehensive income. 
B) transferred to a reserve in the equity section of the statement of financial position. 
C) deferred and amortised over a period not greater than 20 years. 
D) written off against the non-monetary assets of the foreign operation with any balance remaining recognised as a revenue or expense in the period.

Question 11

When consolidating financial statements of foreign operations,we use the same rate each year for goodwill,so that the amount recognised on consolidation will not fluctuate from year to year.

Accepted Answer

A) True 
 B)False

Question 12

Under the translation method required by IAS 21,the approach to translating a foreign operation's accounts includes:

Accepted Answer

A) Non-monetary items included in the statement of financial position are translated at the rate current at reporting date. 
B) Equity at the date of investment is translated at the rate for the when the investment was acquired. 
C) Revenue and expense items are translated at the exchange rates current at the applicable transaction dates statement of financial position. 
D) all of the given answers. 
A) Non-monetary items included in the statement of financial position are translated at the rate current at reporting date. 
B) Equity at the date of investment is translated at the rate for the when the investment was acquired. 
C) Revenue and expense items are translated at the exchange rates current at the applicable transaction dates statement of financial position. 
D) all of the given answers.

Question 13

Explain at what exchange rate income and expenses of a foreign operation are generally translated,and the exception that exists to the 'general rule'.

Accepted Answer

Paragraphs 21 and 23 of IAS 21 provide t

Question 14

When translating foreign subsidiary financial statements,net assets are translated at the ---- rate and the components of net assets are translated at the -----rate.

Accepted Answer

A) (a) current; (b) spot 
B) (a) historical; (b) current 
C) (a) current; (b) historical 
D) (a) spot; (b) current 
A) (a) current; (b) spot 
B) (a) historical; (b) current 
C) (a) current; (b) historical 
D) (a) spot; (b) current

Question 15

The amount of a foreign operation's post-acquisition retained earnings as translated into functional currency will depend on the amount translated from the statement of comprehensive income.

Accepted Answer

A) True 
 B)False

Question 16

Emu Co Ltd purchased a foreign operation based in Singapore on 1 July 2012.The following information was extracted from the foreign operation's financial statements for the period ended 30 June 2014: $$\begin{array} { | l | r | } 
\hline & { \$ S } \
\hline \text { Equipment (purchased 1 July 2012, revalued 1 June 2014) } & 650000 \
\hline \text { Debentures (issued 1 June 2014) } & 900000 \
\hline \text { Inventory on hand (purchased last quarter 2015) } & 68000 \
\hline \text { Depreciation expense-equipment } & 54000 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 4000000 \
\hline \text { Sales revenue (earned evenly over the period) } & 850000 \
\hline
\end{array}$$ Exchange rate information is: $$\begin{array} { | l | l | } 
\hline 1 \text { July } 2012 & \$ S 1.00 = A \$ 1.0520 \
\hline \text { Average for year ended } 30 \text { June } 2014 & \$ S 1.00 = A \$ 1.0700 \
\hline 1 \text { June 2014 } & \$ S 1.00 = A \$ 1.0735 \
\hline \text { Last quarter } 2014 & \$ S 1.00 = A \$ 1.0600 \
\hline 30 \text { June } 2014 & \$ S 1.00 = A \$ 1.0690 \
\hline
\end{array}$$ What is the amount at which each item will be translated (rounded to the nearest A$)?

Accepted Answer

A)  $\begin{array}{|l|r|}
\hline &{\text { AS }} \
\hline \text { Equipment } & 697775 \
\hline \text { Debentures } & 962100 \
\hline \text { Inventory on hand } & 72080 \\hline \text { Depreciation expense-equipment } & 57969 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 420800 \
\hline \text { Sales revenue } & 909500\
\hline
\end{array}$ 
B)  $$\begin{array} { | l | r | } 
\hline & { \text { A\$ } } \
\hline \text { Equipment } & 694850 \
\hline \text { Debentures } & 962100 \
\hline \text { Inventory on hand } & 72692 \
\hline \text { Depreciation expense-equipment } & 57780 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 420800 \
\hline \text { Sales revenue } & 909500\
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | } 
\hline &  { \text { A\$ } } \
\hline \text { Equipment } & 683800 \
\hline \text { Debentures } & 966150 \
\hline \text { Inventory on hand } & 72080 \
\hline \text { Depreciation expense-equipment } & 56808 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 4276000 \
\hline \text { Sales revenue } & 908650 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | } 
\hline &  { \text { A\$ } } \
\hline \text { Equipment } & 695500 \
\hline \text { Debentures } & 963000 \
\hline \text { Inventory on hand } & 72760 \
\hline \text { Depreciation expense-equipment } & 57780 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 4294000 \
\hline \text { Sales revenue } & 908650 \
\hline
\end{array}$$ 
A)  $\begin{array}{|l|r|}
\hline &{\text { AS }} \
\hline \text { Equipment } & 697775 \
\hline \text { Debentures } & 962100 \
\hline \text { Inventory on hand } & 72080 \\hline \text { Depreciation expense-equipment } & 57969 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 420800 \
\hline \text { Sales revenue } & 909500\
\hline
\end{array}$ 
B)  $$\begin{array} { | l | r | } 
\hline & { \text { A\$ } } \
\hline \text { Equipment } & 694850 \
\hline \text { Debentures } & 962100 \
\hline \text { Inventory on hand } & 72692 \
\hline \text { Depreciation expense-equipment } & 57780 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 420800 \
\hline \text { Sales revenue } & 909500\
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | } 
\hline &  { \text { A\$ } } \
\hline \text { Equipment } & 683800 \
\hline \text { Debentures } & 966150 \
\hline \text { Inventory on hand } & 72080 \
\hline \text { Depreciation expense-equipment } & 56808 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 4276000 \
\hline \text { Sales revenue } & 908650 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | } 
\hline &  { \text { A\$ } } \
\hline \text { Equipment } & 695500 \
\hline \text { Debentures } & 963000 \
\hline \text { Inventory on hand } & 72760 \
\hline \text { Depreciation expense-equipment } & 57780 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 4294000 \
\hline \text { Sales revenue } & 908650 \
\hline
\end{array}$$

Question 17

As prescribed in IAS 21,in translating the accounts of a foreign operation from local currency to functional currency,the exchange rate to use for land is the exchange rate at the date of the transaction.

Accepted Answer

A) True 
 B)False

Question 18

Under the translation method required by IAS 21,the approach to translating a foreign operation's financial statements includes:

Accepted Answer

A) translating post-acquisition changes in equity at the exchange rate current at the date of the change. 
B) translating non-monetary assets at the spot exchange rate at the date of the purchase transaction. 
C) translating revenue and expense items at the average rate for the period where the revenues and expense transactions have been evenly distributed over the period. 
D) translating proposed distributions from retained profits at the exchange rate current when the distributions are completed in cash. 
A) translating post-acquisition changes in equity at the exchange rate current at the date of the change. 
B) translating non-monetary assets at the spot exchange rate at the date of the purchase transaction. 
C) translating revenue and expense items at the average rate for the period where the revenues and expense transactions have been evenly distributed over the period. 
D) translating proposed distributions from retained profits at the exchange rate current when the distributions are completed in cash.

Question 19

Under the translation method required by IAS 21,the approach to translating a foreign operation's financial statements includes:

Accepted Answer

A) translating monetary items at the closing rate of exchange . 
B) translating non-monetary assets at the average exchange rate since the date of purchase of the asset. 
C) translating transfers of post-acquisition equity items within the equity category at the rate of exchange current at the date the original equity item was first included in equity. 
D) translating revenues and expenses at the average rate of exchange applied to equity items. 
A) translating monetary items at the closing rate of exchange . 
B) translating non-monetary assets at the average exchange rate since the date of purchase of the asset. 
C) translating transfers of post-acquisition equity items within the equity category at the rate of exchange current at the date the original equity item was first included in equity. 
D) translating revenues and expenses at the average rate of exchange applied to equity items.

Question 20

If the assets of a foreign operation exceed its liabilities,and the value of the functional currency (for example the Euro)falls relative to the currency of the foreign operations,there will be:

Accepted Answer

A) a credit to the 'foreign currency translation reserve' in the consolidated financial statements. 
B) a debit to the 'foreign currency translation reserve' in the consolidated financial statements. 
C) a credit to 'foreign currency translation revenue' in the consolidated financial statements. 
D) a debit to the 'foreign currency translation expense' in the consolidated financial statements. 
A) a credit to the 'foreign currency translation reserve' in the consolidated financial statements. 
B) a debit to the 'foreign currency translation reserve' in the consolidated financial statements. 
C) a credit to 'foreign currency translation revenue' in the consolidated financial statements. 
D) a debit to the 'foreign currency translation expense' in the consolidated financial statements.

Exam 25: Translating the Financial Statements of Foreign Operations

When translating non-monetary liabilities into the functional currency,the translation rate used is:

Exchange differences arising from translation to the presentation currency are not recognised in profit or loss because the changes in exchange rates have little or no direct effect on the present and future cash flows from operations.

Exchange differences resulting from the translation of foreign operations to presentation currency are shown:

When a parent entity has an overseas subsidiary the first task before consolidation is to:

IAS 21 specifies that post-acquisition movements in equity other than retained profits or accumulated losses are translated at:

The foreign exchange exposure of the parent entity in relation to its foreign operation relates to the net cash flows of the investment in the operation.

As prescribed in IAS 21,when remeasuring financial statements of foreign operations to functional currency,which of the following identifies all items to be re-measured at historic rates?

When translating the financial statements of a foreign operation to presentation currency,IAS 21 requires any gain or loss on translation of the financial statements to be:

When consolidating financial statements of foreign operations,we use the same rate each year for goodwill,so that the amount recognised on consolidation will not fluctuate from year to year.

Under the translation method required by IAS 21,the approach to translating a foreign operation's accounts includes:

Explain at what exchange rate income and expenses of a foreign operation are generally translated,and the exception that exists to the 'general rule'.

When translating foreign subsidiary financial statements,net assets are translated at the ---- rate and the components of net assets are translated at the -----rate.

The amount of a foreign operation's post-acquisition retained earnings as translated into functional currency will depend on the amount translated from the statement of comprehensive income.

As prescribed in IAS 21,in translating the accounts of a foreign operation from local currency to functional currency,the exchange rate to use for land is the exchange rate at the date of the transaction.

Under the translation method required by IAS 21,the approach to translating a foreign operation's financial statements includes:

Under the translation method required by IAS 21,the approach to translating a foreign operation's financial statements includes:

If the assets of a foreign operation exceed its liabilities,and the value of the functional currency (for example the Euro)falls relative to the currency of the foreign operations,there will be:

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

An Overview of Accounting for Liabilities

Accounting for Leases

Share Capital, Reserves and Share Options Employee Bonus Schemes

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Accounting for Corporate Social Responsibility

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