Question 1

What are presentation and functional currencies?
 How do they differ?

Accepted Answer

AASB 121 defines 'functional currency' a

Question 2

Sure Ltd purchased goods for £210 000 from a British supplier on 1 April 2015.The amount owing on the purchase is payable on 30 July 2015.On 1 May 2015 a forward-exchange contract for the delivery of £210 000 on 30 July 2015 is taken out with Aus Bank.Exchange rates are as follows:   What entries are required to record the initial transaction and the forward-exchange contract in accordance with AASB 121 and AASB 139 (rounded to the nearest whole A$)?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 3

Hedges cannot be designated and/or documented on a retrospective basis.

Accepted Answer

A) True 
 B)False

Question 4

The functional currency of an entity is the currency of the prime economic environment in which the entity operates.

Accepted Answer

A) True 
 B)False

Question 5

An entity may change its functional currency when there is a change in the underlying transactions,events and conditions.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct with respect to AASB 121 The Effects of Changes in Foreign Exchange Rates?

Accepted Answer

A)  When there is a change in an entity's functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change. 
B)  When there is a change in an entity's functional currency, the entity shall apply the translation procedures applicable to the new functional currency retrospectively from the date of the change. 
C)  Exchange differences arising from the translation of long-term monetary items are recognised in profit or loss on settlement. 
D)  Exchange differences arising from long-term monetary items are deferred and amortised into operating profit or loss over the term of the long-term monetary asset or liability. 
A)  When there is a change in an entity's functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change. 
B)  When there is a change in an entity's functional currency, the entity shall apply the translation procedures applicable to the new functional currency retrospectively from the date of the change. 
C)  Exchange differences arising from the translation of long-term monetary items are recognised in profit or loss on settlement. 
D)  Exchange differences arising from long-term monetary items are deferred and amortised into operating profit or loss over the term of the long-term monetary asset or liability.

Question 8

According to AASB 139,what are the five conditions that must be met in order to apply 'hedge accounting'?

Accepted Answer

According to AASB 139, which is the Aust

Question 9

In terms of retrospectively assessing hedge effectiveness,which of the following situations does not meet the criteria for effectiveness?

Accepted Answer

A)  Fair value of shares increased by $12 750; fair value of hedging instrument increased by $11 200 
B)  Fair value of shares increased by $12 800; fair value of hedging instrument decreased by $10 255 
C)  Fair value of shares decreased by $12 316; fair value of hedging instrument increased by $15 325 
D)  Fair value of shares decreased by $11 999; fair value of hedging instrument increased by $13 225 
A)  Fair value of shares increased by $12 750; fair value of hedging instrument increased by $11 200 
B)  Fair value of shares increased by $12 800; fair value of hedging instrument decreased by $10 255 
C)  Fair value of shares decreased by $12 316; fair value of hedging instrument increased by $15 325 
D)  Fair value of shares decreased by $11 999; fair value of hedging instrument increased by $13 225

Question 10

If an organisation enters a foreign currency swap it will effectively insulate itself against the effects of changes in the spot rates.

Accepted Answer

A) True 
 B)False

Question 11

What is a qualifying asset,and what are the accounting implications in respect to accounting for foreign exchange differences when acquiring such an asset?

Accepted Answer

A qualifying asset is an asset that take

Question 12

On 1 July 2013 Kanga Consultants Ltd completes a contract to provide advice on the installation of a networked computer system to a company in the US.The client pays the fee of US$500 000 into Kanga Consultants' US bank account on that date.The bank pays interest of 8 per cent annually on 30 June.The exchange rate information is: $$\begin{array} { | l | l | } 
\hline 1 \text { July } 2013 & \text { AS1 } = \text { US\$0.56 } \
\hline 30 \text { June } 2014 & \text { AS2} = \text { US\$0.62 } \
\hline
\end{array}$$ What journal entries are required in Kanga Consultants Ltd's books for 1 July 2013 and 30 June 2014 in accordance with AASB 1012 (rounded to the nearest whole A$)?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 13

How does the accounting treatment for qualifying monetary items differ from other foreign currency monetary items as prescribed under AASB 121 The Effects of Changes in Foreign Exchange Rates?

Accepted Answer

There is a general rule within AASB 121

Question 14

Explain why some opponents of the accounting prescribed in AASB 121 object to the requirement that long-term receivables and payables be translated using the reporting date spot rates.

Accepted Answer

Across time,the requirement to recognise

Question 15

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 16

On 1 February 2014,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 2014,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 2014.The following is information about the exchange rates: $$\begin{array} { | l | l | } 
\hline 1 \text { February } 2014 & \text { A\$1 } = € 0.60 \
\hline 30 \text { May } 2014 & \text { A\$1 } = € 0.56 \
\hline 30 \text { June } 2014 & \text { A\$1 } = € 0.46 \
\hline
\end{array}$$ 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) 
  
A) 
  
B) 
  
C) 
  
D)

Question 17

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 18

On 1 January 2014 Antique Furniture Importers acquires furniture from a supplier in Europe.The furniture is shipped f.o.b.from Brussels on 1 January 2014.The cost of the furniture is €600 000.The amount has not been paid at 31 January 2014.Exchange rates are as follows: $$\begin{array} { | l | l | } 
\hline 1 \text { January } 2014 & \text { A\$1.00 } = € 0.59 \
\hline 31 \text { January } 2014 & \text { A\$1.00 } = € 0.46 \
\hline
\end{array}$$ What is the amount payable at 1 January and 31 January 2014 in Australian dollars (rounded to the nearest whole A$)?
Did the Australian dollar strengthen or weaken?

Accepted Answer

A) 
$$\begin{array} { | l | l | } 
\hline \text { 1 January } 2014 & \$ 1016949 \
\hline \text { 31 January } 2014 & \$ 1304348 \
\hline
\end{array}$$ The Australian dollar weakened. 
B) 
$$\begin{array} { | l | l | } 
\hline \text { 1 January } 2014 & \$ 246000 \
\hline \text { 31 January } 2014 & \$ 324000 \
\hline
\end{array}$$ The Australian dollar strengthened. 
C) 
$$\begin{array} { | l | l | } 
\hline \text { 1 January } 2014 & \$ 1463415 \
\hline \text { 31 January } 2014 & \$ 1111111 \
\hline
\end{array}$$ The Australian dollar weakened. 
D) 
$$\begin{array} { | l | l | } 
\hline \text { 1 January } 2014 & \$ 354000 \
\hline \text { 31 January } 2014 & \$ 276000 \
\hline
\end{array}$$ The Australian dollar strengthened. 
A) 
$$\begin{array} { | l | l | } 
\hline \text { 1 January } 2014 & \$ 1016949 \
\hline \text { 31 January } 2014 & \$ 1304348 \
\hline
\end{array}$$ The Australian dollar weakened. 
B) 
$$\begin{array} { | l | l | } 
\hline \text { 1 January } 2014 & \$ 246000 \
\hline \text { 31 January } 2014 & \$ 324000 \
\hline
\end{array}$$ The Australian dollar strengthened. 
C) 
$$\begin{array} { | l | l | } 
\hline \text { 1 January } 2014 & \$ 1463415 \
\hline \text { 31 January } 2014 & \$ 1111111 \
\hline
\end{array}$$ The Australian dollar weakened. 
D) 
$$\begin{array} { | l | l | } 
\hline \text { 1 January } 2014 & \$ 354000 \
\hline \text { 31 January } 2014 & \$ 276000 \
\hline
\end{array}$$ The Australian dollar strengthened.

Question 19

To classify an arrangement as a hedge,and therefore to apply 'hedge accounting',AASB 132 requires a set of strict conditions be met.

Accepted Answer

A) True 
 B)False

Question 20

An exception to the requirement that foreign currency monetary items should be re-translated at the reporting date is:

Accepted Answer

A)  when the foreign exchange rate is considered to be undervalued. 
B)  when the foreign currency exchange rate is fixed for a particular transaction according to a contractual arrangement. 
C)  when exchange rates are expected to move in the opposite direction shortly after reporting date. 
D)  when the foreign exchange rate is considered to be overvalued. 
A)  when the foreign exchange rate is considered to be undervalued. 
B)  when the foreign currency exchange rate is fixed for a particular transaction according to a contractual arrangement. 
C)  when exchange rates are expected to move in the opposite direction shortly after reporting date. 
D)  when the foreign exchange rate is considered to be overvalued.

Exam 32: Accounting for Foreign Currency Transactions

What are presentation and functional currencies? How do they differ?

Hedges cannot be designated and/or documented on a retrospective basis.

The functional currency of an entity is the currency of the prime economic environment in which the entity operates.

An entity may change its functional currency when there is a change in the underlying transactions,events and conditions.

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

Which of the following statements is correct with respect to AASB 121 The Effects of Changes in Foreign Exchange Rates?

According to AASB 139,what are the five conditions that must be met in order to apply 'hedge accounting'?

In terms of retrospectively assessing hedge effectiveness,which of the following situations does not meet the criteria for effectiveness?

If an organisation enters a foreign currency swap it will effectively insulate itself against the effects of changes in the spot rates.

What is a qualifying asset,and what are the accounting implications in respect to accounting for foreign exchange differences when acquiring such an asset?

How does the accounting treatment for qualifying monetary items differ from other foreign currency monetary items as prescribed under AASB 121 The Effects of Changes in Foreign Exchange Rates?

Explain why some opponents of the accounting prescribed in AASB 121 object to the requirement that long-term receivables and payables be translated using the reporting date spot rates.

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.

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.

To classify an arrangement as a hedge,and therefore to apply 'hedge accounting',AASB 132 requires a set of strict conditions be met.

An exception to the requirement that foreign currency monetary items should be re-translated at the reporting date is:

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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