On 1 September 2015 Antique Furniture Importers acquires furniture from a supplier in Europe.The furniture is shipped f.o.b.from Brussels on 1 September 2015.The cost of the furniture is €500 000.The amount has not been paid at 30 September 2015.Exchange rates are as follows: \[\begin{array} { | l | l | } \hline 1 \text { September } 2015 & \text { A\$1.00 } = € 0.52 \\ \hline 30 \text { September } 2015 & \text { A\$1.00 } = € 0.58 \\ \hline \end{array}\] What is the amount payable at 1 September and 30 September 2015in Australian dollars (rounded to the nearest whole A$)? Did the Australian dollar strengthen or weaken?

A) \[\begin{array} { | l | l | } \hline 1 \text { September } 2015 & \$ 260000 \\ \hline 30 \text { September } 2015 & \$ 290000 \\ \hline \end{array}\] The Australian dollar weakened. B) \[\begin{array} { | l | l | } \hline \text { 1 September } 2015 & \$ 1041667 \\ \hline 30 \text { September } 2015 & \$ 1190476 \\ \hline \end{array}\] The Australian dollar strengthened. C) \[\begin{array} { | l | l | } \hline \text { 1 September } 2015 & \$ 961538 \\ \hline 30 \text { September } 2015 & \$ 862069 \\ \hline \end{array}\] The Australian dollar strengthened. D) \[\begin{array} { | l | l | } \hline 1 \text { September } 2015 & \$ 240000 \\ \hline 30 \text { September } 2015 & \$ 210000 \\ \hline \end{array}\] The Australian dollar weakened. A) \[\begin{array} { | l | l | } \hline 1 \text { September } 2015 & \$ 260000 \\ \hline 30 \text { September } 2015 & \$ 290000 \\ \hline \end{array}\] The Australian dollar weakened. B) \[\begin{array} { | l | l | } \hline \text { 1 September } 2015 & \$ 1041667 \\ \hline 30 \text { September } 2015 & \$ 1190476 \\ \hline \end{array}\] The Australian dollar strengthened. C) \[\begin{array} { | l | l | } \hline \text { 1 September } 2015 & \$ 961538 \\ \hline 30 \text { September } 2015 & \$ 862069 \\ \hline \end{array}\] The Australian dollar strengthened. D) \[\begin{array} { | l | l | } \hline 1 \text { September } 2015 & \$ 240000 \\ \hline 30 \text { September } 2015 & \$ 210000 \\ \hline \end{array}\] The Australian dollar weakened.

The following data is provided for the fair value of a share portfolio,and the fair value of a forward contract taken out on 1 July 2014 to 'hedge' movements in the fair value of the shares.Assume the hedge was highly effective at inception of the hedge. \[\begin{array} { | l | l | l | } \hline \text { Date } & \text { Fair value of shares } & \text { Fair value of forward contract } \\ \hline \text { 1 July } 2014 & \$ 10000000 & \text { Nil } \\ \hline 30 \text { June } 2015 & \$ 9256000 & \$ 689000 \\ \hline 30 \text { June } 2016 & \$ 9588000 & \$ 254000 \\ \hline 30 \text { June } 2017 & \$ 10586000 & ( \$ 721000 ) \\ \hline \end{array}\] Which of the following statements is true?

A) It is not an effective hedge as there was a difference of $10 000 000 between the fair values of the shares and the forward contract at inception. B) It is not an effective hedge as a forward contract cannot be used as a hedging instrument. C) It is an effective hedge as the movement in the fair value of the hedging instrument between 1 July 2014 and 30 June 2017offset movements in fair value of the shares in the same period, which is within the 80-125 per cent hedge effectiveness range. D) It is not an effective hedge as the movements in the fair value of the hedging instrument failed to offset movements in the fair value of the shares and stay within the 80-125 per cent hedge effectiveness range throughout the period to 30 June 2017. A) It is not an effective hedge as there was a difference of $10 000 000 between the fair values of the shares and the forward contract at inception. B) It is not an effective hedge as a forward contract cannot be used as a hedging instrument. C) It is an effective hedge as the movement in the fair value of the hedging instrument between 1 July 2014 and 30 June 2017offset movements in fair value of the shares in the same period, which is within the 80-125 per cent hedge effectiveness range. D) It is not an effective hedge as the movements in the fair value of the hedging instrument failed to offset movements in the fair value of the shares and stay within the 80-125 per cent hedge effectiveness range throughout the period to 30 June 2017.

Exam 32: Accounting for Foreign Currency Transactions

On 5 September 2014 Russell Ltd places an order for €500 000 of inventory from a Swedish supplier.The terms for the purchase of the goods are that they are f.o.b.shipping point and they are to be paid for on 5 November.The financial controller of Russell Ltd enters into a forward-exchange contract on 5 September and designates it as a hedge for the purchase.The forward-exchange contract is for €500 000 to be supplied by the bank on 5 November 2014.The goods are shipped on 5 October 2014 and are paid for on 5 November. What are the journal entries to record the above transactions from 5 September through to 5 November in accordance with AASB 121 (rounded to the nearest whole A$)?

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

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

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

AASB 121 requires foreign currency monetary items that are expected to be settled in the short term to be translated at the spot rate at reporting date,but does not require this treatment for long-term monetary items denominated in foreign currencies.

Free

(True/False)

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Question 3

Correct Answer:

Verified

False

For a cash flow hedge relating to the purchase of a particular asset,foreign exchange gains and losses made on the hedging instrument:

(Multiple Choice)

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Question 4

Which of the following items is not a required condition for applying hedge accounting?

(Multiple Choice)

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Question 5

Which of the following items is not within the scope of AASB 121 The Effects of Changes in Foreign Exchange Rates?

(Multiple Choice)

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Question 6

On 1 September 2015 Antique Furniture Importers acquires furniture from a supplier in Europe.The furniture is shipped f.o.b.from Brussels on 1 September 2015.The cost of the furniture is €500 000.The amount has not been paid at 30 September 2015.Exchange rates are as follows: 1 September 2015 A \1 .00 =0.52 30 September 2015 A \1 .00 =0.58 What is the amount payable at 1 September and 30 September 2015in Australian dollars (rounded to the nearest whole A$)? Did the Australian dollar strengthen or weaken?

(Multiple Choice)

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Question 7

The following data is provided for the fair value of a share portfolio,and the fair value of a forward contract taken out on 1 July 2014 to 'hedge' movements in the fair value of the shares.Assume the hedge was highly effective at inception of the hedge. Date Fair value of shares Fair value of forward contract 1 July 2014 \ 10000000 Nil 30 June 2015 \ 9256000 \ 689000 30 June 2016 \ 9588000 \ 254000 30 June 2017 \ 10586000 (\ 721000) Which of the following statements is true?

(Multiple Choice)

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Question 8

Describe,with examples,the two tests of hedge effectiveness.

(Essay)

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Question 9

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

(Multiple Choice)

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Question 10

AASB 121 requires foreign currency transactions to be recorded,on initial recognition in the presentation currency,by applying to the foreign currency amount the spot exchange rate between the presentation currency and the foreign currency at the date of the transaction.

(True/False)

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Question 11

In selecting the appropriate foreign currency exchange rates to apply in translating foreign currency transactions,the accountant exercises an important element of judgment about whether the rates are overvaluing or undervaluing the reporting currency.

(True/False)

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Question 12

On 1 July 2014 Waugh Ltd enters into an arrangement with a US bank-Big Bank-to borrow US$900 000.The term of the loan is 3 years with interest payable annually in arrears on 30 June at the rate of 10 per cent.The exchange rate information is: 1 July 2014 A \1 = US \0 .45 30 June 2015 A \1 = US \0 .55 What journal entries are required in Waugh Ltd's books for 1 July 2014 and 30 June 2015 in accordance with AASB 121 (rounded to the nearest whole A$)?

(Multiple Choice)

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Question 13

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

(Multiple Choice)

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Question 14

There are two broad categories of foreign currency issues that arise in financial reporting.They are:

(Multiple Choice)

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Question 15

Which of the following is not a condition that must be met,according to AASB 139,before a relationship qualifies for hedge accounting?

(Multiple Choice)

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Question 16

Where the hedge arrangement completely eliminates the consequences of adverse exchange-rate fluctuations,the purchase or sales arrangement is considered to be:

(Multiple Choice)

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Question 17

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

(Multiple Choice)

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Question 18

Which of the following items is within the scope of AASB 121 The Effects of Changes in Foreign Exchange Rates?

(Multiple Choice)

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Question 19

The exchange rate for a currency depends on many factors including:

(Multiple Choice)

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Question 20

Showing 1 - 20 of 78

Exam 32: Accounting for Foreign Currency Transactions

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

AASB 121 requires foreign currency monetary items that are expected to be settled in the short term to be translated at the spot rate at reporting date,but does not require this treatment for long-term monetary items denominated in foreign currencies.

For a cash flow hedge relating to the purchase of a particular asset,foreign exchange gains and losses made on the hedging instrument:

Which of the following items is not a required condition for applying hedge accounting?

Which of the following items is not within the scope of AASB 121 The Effects of Changes in Foreign Exchange Rates?

Describe,with examples,the two tests of hedge effectiveness.

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

AASB 121 requires foreign currency transactions to be recorded,on initial recognition in the presentation currency,by applying to the foreign currency amount the spot exchange rate between the presentation currency and the foreign currency at the date of the transaction.

In selecting the appropriate foreign currency exchange rates to apply in translating foreign currency transactions,the accountant exercises an important element of judgment about whether the rates are overvaluing or undervaluing the reporting currency.

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

There are two broad categories of foreign currency issues that arise in financial reporting.They are:

Which of the following is not a condition that must be met,according to AASB 139,before a relationship qualifies for hedge accounting?

Where the hedge arrangement completely eliminates the consequences of adverse exchange-rate fluctuations,the purchase or sales arrangement is considered to be:

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

Which of the following items is within the scope of AASB 121 The Effects of Changes in Foreign Exchange Rates?

The exchange rate for a currency depends on many factors including:

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of 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

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

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 Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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