Deck 33: Translating the Financial Statements of Foreign Operations

Question 1

As prescribed in AASB 121,in translating the accounts of a foreign operation from functional to presentation currency,the exchange rate to use for inventory is the average rate during the period the inventory was purchased.

Answer 1

False

Question 2

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.

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

In translating the accounts of a foreign operation from functional to presentation currency,resulting exchange differences is recognised in other comprehensive income.

Question 5

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.

Question 6

'Exchange rate' is:

A) not defined in AASB 121.
B) the difference between the currency rates.
C) the rate at which one currency can be exchanged for another.
D) all of the given answers.

Question 7

The former AASB 1012 treatment is consistent with the requirements of AASB 121.

Question 8

If the exchange rate for US dollars relative to Australian dollars goes from US$1 = A$2.10 to US$1 = A$2.20,the Australian dollar has strengthened.

Question 9

On the disposal of a foreign operation,AASB 121 prescribed that the cumulative amount of the exchange differences deferred in equity be reclassified to retained earnings.

Question 10

The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash.

Question 11

As prescribed in AASB 121,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.

Question 12

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

Question 13

As prescribed in AASB 121,translation of the accounts of foreign operations to the presentation currency requires any gains or losses on translation be taken directly to reserves.

Question 14

The exchange rate used for the translation of the payment of dividends is the spot rate at the date when the retained earnings or reserves,from which the dividends were drawn,were created.

Question 15

The translation approach required by AASB 121 in translating to presentation currency is similar to the 'current rate' method required under the former AASB 1012.

Question 16

AASB 121 prescribes alternative methods for the translation of the accounts of foreign operations.It depends upon whether these operations are integrated or self-sustaining.

Question 17

The 'spot rate' is:

A) the rate for delivery the next day of currencies to be exchanged.
B) the exchange rate for immediate delivery of currencies to be exchanged.
C) only used in relation to metals, that is, the spot metal price.
D) can never be used in translating the accounts of foreign operations.

Question 18

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

Question 19

A currency other than the functional currency of the entity is known as foreign currency.

Question 20

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

Question 21

Yarra Manufacturing Ltd is an Australian registered entity that has a branch in Singapore,Kew Ltd.The Singapore branch has a foreign operation in China.The foreign operation maintains its accounting records in Chinese yuan.The functional currency of the Chinese operation is Singapore dollar.The presentation currency of Kew Ltd is Australian dollar. At reporting date,the translation of the financial statements of the Chinese foreign operation resulted in a loss of S$6500 and the translation of the financial statements of Kew Ltd to its presentation currency resulted to a gain of A$4500.
Which of the following results is consistent with AASB 121 with respect to Kew Ltd?

A) Loss of S$6500 should be recognised in profit and loss.
B) Loss of S$6500 should be recognised in comprehensive income.
C) Gain of A$4500 should be recognised in profit and loss.
D) Gain of A$4500 should be recognised in comprehensive income.

Question 22

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

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

Question 23

Ramikin Co is a fully owned subsidiary of Bobbin Ltd,an Australian company.Bobbin Ltd purchased all the issued capital of Ramikin Ltd on 1 July 2014.Ramikin Ltd is based in Canada.The following information is summarised from the foreign currency accounts of Ramikin Ltd for the period ended 30 June 2015. Ramikin Ltd
Statement of comprehensive income period ended 30 June 2015
$\begin{array}{|l|r|r|}\hline & \text { SCAN } & \text { SCAN } \\\hline \text { Sales } & 5000 & \\\hline \text { less Cost of goods sold } & & \\\hline \text { Opening inventory } & 300 & \\\hline \text { Purchases } & 2150 & \\\hline \text { Closing inventory } & \underline{(400)} & \underline{2050} \\\hline \text { Gross profit } & & 2950 \\\hline \text { Expenses } & & \underline{1200} \\\hline \text { Operating profit } & & 1750 \\\hline \text { Income tax expense } & & \underline{980} \\\hline \text { Operating profit after tax } & & \underline{770} \\\hline\end{array}$

Ramikin Ltd
Statement of financial position as at 30 June 2015
$\begin{array}{|l|r|r|}\hline \text { Assets } \\\hline \text { Plant and equipment } & & 7450 \\\hline \text { Land } & & 4000 \\\hline \text { Cash and debtors } & & 830 \\\hline \text { Inventory } & & \underline{400} \\\hline \text { Total assets } & & \underline{12680} \\\hline \text { Liabilities } & & \\\hline \text { Bank loan } & & 4000 \\\hline \text { Trade creditors } & & 610 \\\hline \text { Shareholders' funds } & & \\\hline \text { Share capital } & & 5300 \\\hline \text { Retained eamings } & & \\\hline \text { 31 July } 2014 & 2000 & \\\hline \text { 30 June 2015 } & 770 & \underline{2770} \\\hline \text { Totane liabilities and shareholders' funds } &&12680\\\hline\end{array}$ Additional information:
All revenues and expenses were earned or incurred evenly throughout the year.
Inventory was purchased evenly over the period,with the inventory on hand at the end of the period purchased over the quarter ending on 30 June and trade creditors were accrued evenly over the period.
Exchange rate information:
$$\begin{array} { | l | l | } \hline \text { July } 2014 & \text { \$CAN1.00 } = \text { A\$1.23 } \\\hline 1 \text { July } 2014 & \text { \$CAN1.00 } = \text { A\$1.150 } \\\hline \text { Average for the year ended } 30 \text { June } 2015 & \text { SCAN1.00 } = \text { A\$1.140 } \\\hline \text { Average rate for quarter ending } 30 \text { June } 2015 & \text { \$CAN1.00 } = \text { A\$1.210 } \\\hline\end{array}$$ Based on the information provided.What is the gain/(loss)on foreign currency translation for Ramikin Ltd for the period?

A) gain A$385
B) loss A$28
C) loss A$612
D) gain A$376

Question 24

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

A)
$$\begin{array} { | l | r | } \hline & { \text { A\$ } } \\\hline \text { Equipment } & 697775 \\\hline \text { Debentures } & 962100 \\\hline \text { Inventory on hand } & 72080 \\\hline \text { Depreciation expense-equipment } & 57969 \\\hline \text { Share capital at acquisition of foreign subsidiary } & 4208000 \\\hline \text { Sales revenue } & 909500 \\\hline\end{array}$$
B)
$$\begin{array} { | l | r | } \hline & { \text { A\$ } } \\\hline \text { Equipment } & 694850 \\\hline \text { Debentures } & 962100 \\\hline \text { Inventory on hand } & 72692 \\\hline \text { Depreciation expense-equipment } & 57780 \\\hline \text { Share capital at acquisition of foreign subsidiary } & 4208000 \\\hline \text { Sales revenue } & 909500 \\\hline\end{array}$$
C)
$$\begin{array} { | l | r | } \hline & { \mathrm { A\$ } } \\\hline \text { Equipment } & 683800 \\\hline \text { Debentures } & 966150 \\\hline \text { Inventory on hand } & 72080 \\\hline \text { Depreciation expense-equipment } & 56808 \\\hline \text { Share capital at acquisition of foreign subsidiary } & 4276000 \\\hline \text { Sales revenue } & 908650 \\\hline\end{array}$$
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 25

Aus Co Ltd has a foreign operation based in Japan.The following information was extracted from the foreign operation's accounts for the period ended 30 June 2015: $$\begin{array} { | l | r |} \hline & ¥ 000 \\\hline \text { Machinery (at cost purchased 1 July 2013) } & 85000 \\\hline \text { Inventory on hand (purchased last quarter 2015) } & 16000 \\\hline \text { Depreciation expense-machinery } & 8200 \\\hline \text { Land (purchased 1 July 2013, revalued 1 June 2015) } & 150000 \\\hline\end{array}$$ Exchange rate information is:
$$\begin{array} { | l | l | } \hline \text { July } 2013 & ¥ 1.00 = \text { AS0.0136 } \\\hline \text { Average for year ended } 30 \text { June } 2015 & ¥ 1.00 = \text { AS0.0153 } \\\hline 1 \text { June } 2015 & ¥ 1.00 = \text { A\$0.0146 } \\\hline \text { Last quarter } 2015 & ¥ 1.00 = \text { A\$0.0150 } \\\hline 30 \text { June } 2015 & ¥ 1.00 = \text { A\$0.0165 } \\\hline\end{array}$$ What is the amount at which each item would be translated (rounded to the nearest A$)?

A)
$$\begin{array} { | l | r | } \hline & { \text { A\$ } } \\\hline \text { Machinery } & 1402500 \\\hline \text { Inventory on hand } & 264000 \\\hline \text { Depreciation expense-machinery } & 125460 \\\hline \text { Land } & 2475000 \\\hline\end{array}$$
B)
$$\begin{array} { | l | r | } \hline & { \text { A\$ } } \\\hline \text { Machinery } & 1156000 \\\hline \text { Inventory on hand } & 240000 \\\hline \text { Depreciation expense-machinery } & 111520 \\\hline \text { Land } & 2190000 \\\hline\end{array}$$
C)
$$\begin{array} { | l | r | } \hline & { \text { A\$ } } \\\hline \text { Machinery } & 1402000 \\\hline \text { Inventory on hand } & 233600 \\\hline \text { Depreciation expense-machinery } & 111520 \\\hline \text { Land } & 2040000 \\\hline\end{array}$$
D)
$$\begin{array} { | l | r | } \hline & { \text { A\$ } } \\\hline \text { Machinery } & 1156000 \\\hline \text { Inventory on hand } & 264000 \\\hline \text { Depreciation expense-machinery } & 135300 \\\hline \text { Land } & 2040000 \\\hline\end{array}$$

Question 26

When translating the financial statements of a foreign operation to presentation currency,AASB 121 requires any gain or loss on translation of the accounts to be:

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 27

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

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.

Question 28

Aus Co Ltd has a foreign operation based in New Zealand.The following information was extracted from the foreign operation's accounts 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:
$$\begin{array} { | l | l | } \hline \text { July } 2013 & \text { A\$1.00 } = \text { \$NZ 1.1255 } \\\hline \text { Average for year ended } 30 \text { June } 2015 & \text { A\$1.00 } = \text { \$NZ 1.2135 } \\\hline 1 \text { June } 2015 & \text { A\$1.00 } = \text { \$NZ 1.1024 } \\\hline \text { Last quarter } 2015 & \text { A\$1.00 } = \text { \$NZ 1.2503 } \\\hline 30 \text { June } 2015 & \text { A\$1.00 = \$NZ 1.3250 } \\\hline\end{array}$$ What is the amount at which each item will be translated (rounded to the nearest A$)?

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

Question 29

Under the translation method required by AASB 121,the approach to translating a foreign operation's accounts includes:

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 30

Distributions from retained profits are translated at:

A) the spot rate.
B) the rates current at the reporting date.
C) the rates current at the dates when the retained profits were created.
D) The standard is silent on this translation.

Question 31

Yarra Manufacturing Ltd is an Australian registered entity that has a branch in Singapore,Kew Ltd.Kew Ltd has a foreign operation in China.The foreign operation maintains its accounting records in Chinese yuan.The functional currency of the Chinese operation is Singapore dollar.The presentation currency of Kew Ltd is Australian dollar. At reporting date,the translation of the financial statements of the Chinese foreign operation resulted in a loss of S$6500 and the translation of the financial statements of Kew Ltd to its presentation currency resulted to a gain of A$4500.
Which of the following results is consistent with AASB 121 with respect to Yarra Manufacturing Ltd?

A) Loss of S$6500 should be recognised in profit and loss.
B) Loss of S$6500 should be recognised in comprehensive income.
C) Gain of A$4500 should be recognised in profit and loss.
D) Gain of A$4500 should be recognised in comprehensive income.

Question 32

In the process of consolidating the translated financial accounts 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.

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

Question 33

Under the translation method required by AASB 121,the approach to translating a foreign operation's accounts includes:

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 34

The net assets of a foreign operation at 30 June 2015 are constituted as assets of US$400 000 and liabilities of US$250 000.The parent entity purchased the foreign subsidiary on 1 July 2012.Exchange rate information is as follows: $$\begin{array} { | l | l | } \hline 1 \text { July } 2012 & \text { US\$1.00 = A\$1.6949 } \\\hline 1 \text { July } 2014 & \text { US\$1.00 = A\$1.7857 } \\\hline 30 \text { June } 2015 & \text { US\$1.00 = A\$1.9231 } \\\hline\end{array}$$ The foreign operation has not traded during the year ended 30 June 2015,so the net assets remained unchanged during the period.What is the parent entity's foreign currency exposure for the year ended 30 June 2015?

A) foreign exchange gain A$197 185
B) foreign exchange gain A$20 610
C) foreign exchange gain A$342 310
D) foreign exchange loss A$6002
This means the opening currency is 1.7857; closing currency is 1.9231 = movement of US$ 0.1374. Therefore the net assets of US$150,000 (400-200) x 0.1374 = $20,610. This is a gain as the US$ has strengthened against the A$.

Question 35

Under the translation method required by AASB 121,the approach to translating a foreign operation's accounts includes:

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 36

In the process of consolidating the translated financial accounts of a foreign operation,the elimination entry to record goodwill will be affected by the translation process in what way?

A) The elimination of the investment against the pre-acquisition capital and reserves and the calculation of goodwill will vary each year depending on the exchange rates at the end of the period that are used to calculate the foreign exchange gain or loss.
B) The elimination of the investment against the pre-acquisition capital and reserves and the calculation of goodwill will be the same unless inter-company transactions have to be eliminated, in which case the entry will have to be adjusted for the exchange rate differences on the inter-company transactions.
C) The elimination of the investment against the pre-acquisition capital and reserves and the calculation of goodwill will be the same each year the elimination entry is made.
D) The elimination of the investment against the pre-acquisition capital and reserves and the calculation of goodwill will be affected by any subsequent transfers between equity items that may arise as a result of bonus issues or transfers between reserves.

Question 37

In the process of consolidating the translated financial accounts of a foreign operation,the calculation of minority interests will be affected by the translation process in what way?

A) The minority interests will be allocated a portion of the gain or loss on translation from the statement of comprehensive income.
B) The effect of transactions between the subsidiary and the minority interests will be eliminated after calculating the unrealised foreign exchange gain or loss implicit in the unrealised profit on the inter-company transaction.
C) The minority interests will be allocated a portion of the foreign currency translation reserve.
D) The calculation of the minority interests' is not affected.

Question 38

AASB 121 specifies that post-acquisition movements in equity other than retained profits or accumulated losses are translated at:

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

Question 39

If the assets of a foreign operation exceed its liabilities,and the value of the Australian dollar falls relative to the currency of the foreign operations,there will be:

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

Question 40

On 1 July 2013 Land Ltd acquired all of the issued shares of Fall Co,a company based in the US.The financial statements for Fall Co for the year ended 30 June 2015 are provided below.Exchange rate information is: $$\begin{array} { | l | r | } \hline 1 \text { July } 2013 & \text { A\$1.00 } = \text { US\$0.50 } \\\hline 30 \text { June } 2014 & \text { A\$1.00 } = \text { US\$0.55 } \\\hline 1 \text { June } 2015 & \text { A\$1.00 } = \text { US\$0.49 } \\\hline 30 \text { June } 2015 & \text { A\$1.00 } = \text { US\$0.52 } \\\hline \text { Average for the year ended } 30 \text { June } 2015 & \text { A\$1.00 } = \text { US\$0.51 } \\\hline \text { Dividends paid-1 March } 2015 & \text { A\$1.00 } = \text { US\$0.53 } \\\hline \text { Average rate for quarter ending } 30 \text { June } 2015 & \text { A\$1.00 } = \text { US\$0.48 } \\\hline\end{array}$$ Additional information:
All revenues and expenses were earned or incurred evenly throughout the year.
All plant and equipment was purchased using a long-term loan when the exchange rate was A$1.00 = US$0.54.
Inventory was purchased evenly over the period,with the inventory on hand at the end of the period purchased over the quarter ending on 30 June,and accounts payable were accrued evenly over the period.
What are the translated amounts for operating profit,retained profit at 30 June 2015,total equity and liabilities and the gain or loss on foreign currency translation for Fall Co (rounded to the nearest A$)?

A)
$$\begin{array} { | l | r | } \hline & \text { A\$000 } \\\hline \text { Operating profit before tax } & 5639 \\\hline \text { Retained profit-30 June 2015 } & 4268 \\\hline \text { Total equity and liabilities } & 19883 \\\hline \text { Gain/(loss) on foreign currency translation } & \text { (1 194) } \\\hline\end{array}$$
B)
$$\begin{array} { | l | r | } \hline & \text { A\$000 } \\\hline \text { Operating profit before tax } & 1346 \\\hline \text { Retained profit-30 June } 2015 & 1398 \\\hline \text { Total equity and liabilities } & 5540 \\\hline \text { Gain/(loss) on foreign currency translation } & 124 \\\hline\end{array}$$
C)
$$\begin{array} { | l | r | } \hline & \text { A\$000 } \\\hline \text { Operating profit before tax } & 2015 \\\hline \text { Retained profit-30 June 2015 } & 1659 \\\hline \text { Total equity and liabilities } & 5677 \\\hline \text { Gain/(loss) on foreign currency translation } & 261 \\\hline\end{array}$$
D)
$$\begin{array} { | l | r | } \hline & \text { A\$000 } \\\hline \text { Operating profit before tax } & 6745 \\\hline \text { Retained profit-30 June 2015 } & 5365 \\\hline \text { Total equity and liabilities } & 20500 \\\hline \text { Gain/(loss) on foreign currency translation } & ( 480 ) \\\hline\end{array}$$

Question 41

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

Question 42

Distinguish monetary items from non-monetary items.Provide two examples of each.

Question 43

As prescribed in AASB 121,when re-measuring financial statements of foreign operations to presentation currency,which of the following identifies all items to be remeasured at historic rates?

A) cash, accounts receivable and accounts payable
B) inventory, goodwill, property plant and equipment
C) accounts payable, unearned revenue and note payable
D) gain on sale of non-current assets, dividend revenue and dividends paid

Question 44

Contrast how statement of financial position items of foreign operations are translated between translation to functional currency and translation to presentation currency as prescribed in AASB 121.

Question 45

Lennon Ltd has two foreign operations based in Japan.The following information was extracted from the foreign operation's accounts for the period ended 30 June 2015: $$\begin{array} { | l | r | r | } \hline \text { In Japanese yen } ( ¥ ) & \text { Yoko Ltd } & \text { Ono Ltd } \\\hline \text { Machinery (at cost purchased 1 July 2013) } & 85000 & 100000 \\\hline \text { Inventory on hand (purchased second quarter 2015) } & 1000 & 25000 \\\hline \text { Depreciation expense-machinery } & 8200 & 10000 \\\hline \text { Land (purchased 1 July 2013, revalued 1 June 2015) } & 150000 & 200000 \\\hline\end{array}$$ Exchange rate information is:
$$\begin{array} { | l | l | } \hline \text { July } 2013 & \text { A\$1.00 } = ¥ 74 \\\hline \text { Average for year ended } 30 \text { June } 2015 & \text { A\$1.00 } = ¥ 65 \\\hline 1 \text { June } 2015 & \text { A\$1.00 } = ¥ 68 \\\hline \text { Second quarter } 2015 & \text { A\$1.00 } = ¥ 67 \\\hline 30 \text { June } 2015 & \text { A\$1.00 } = ¥ 61 \\\hline\end{array}$$ The translation from Japanese yen to Australian dollars resulted in the following balances (rounded to the nearest ¥000):
$$\begin{array} { | l | r | r | } \hline \text { In Japanese yen } ( ¥ \text { ) } & \text { Yoko Ltd } & \text { Ono Ltd } \\\hline \text { Machinery (at cost purchased 1 July 2013) } & 1149 & 1639 \\\hline \text { Inventory on hand (purchased second quarter 2015) } & 239 & 410 \\\hline \text { Depreciation expense-machinery } & 111 & 154 \\\hline \text { Land (purchased 1 July 2013, revalued 1 June 2015) } & 2205 & 3278 \\\hline\end{array}$$ Which of the following translation processes were applied to Yoko Ltd and Ono Ltd,respectively,for the year ended 30 June 2015?

A) functional currency; presentation currency
B) functional currency; functional currency
C) presentation currency; functional currency
D) presentation currency; presentation currency

Question 46

Outline the approach to be taken when translating the accounts of a foreign subsidiary; that is,the various rates to be used for the various components of the financial statements.

Question 47

As prescribed in AASB 121,when remeasuring financial statements of foreign operations to functional currency,which of the following identifies all items to be re-measured at historic rates?

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 48

Explain how foreign currency translation reserves arise.When and how are these derecognised?

Question 49

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

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

Question 50

Rudd Ltd,an Australian entity purchased Lee Ltd and Kew Ltd on 1 July 2012.Both entities are considered foreign operations of Rudd Ltd based in Singapore.The following information was extracted from the foreign operation's accounts for the period ended 30 June 2015: $$\begin{array} { | l | r | r | } \hline \text { In Singapore \$ } & \text { Lee Ltd } & \text { Kew Ltd } \\\hline \text { Equipment (purchased 1 July 2012, revalued 1 June 2014) } & 650000 & 200000 \\\hline \text { Debentures (issued 1 June 2014) } & 900000 & 500000 \\\hline \text { Inventory—asset (purchased last quarter 2015) } & 68000 & 50000 \\\hline \text { Depreciation expense-equipment } & 54000 & 25000 \\\hline \text { Share capital at acquisition of foreign operation } & 4000000 & 2000000 \\\hline \text { Sales revenue (earned evenly over the period) } & 850000 & 680000 \\\hline\end{array}$$ Exchange rate information is:
$$\begin{array} { | l | l |} \hline1 \text { July } 2012 & \$ S 1.00 = A \$ 1.0520 \\\hline \text { Average for year ended } 30 \text { June } 2015 & \$ S 1.00 = A \$ 1.0700 \\\hline 1 \text { June } 2014 & \$ S 1.00 = A \$ 1.0735 \\\hline \text { Second quarter } 2015 & \$ S 1.00 = A \$ 1.0600 \\\hline 30 \text { June } 2015 & \$ S 1.00 = A \$ 1.0690 \\\hline\end{array}$$ The translation from Singapore dollars to Australian dollars resulted to the following balances:
$$\begin{array} { | l | r | r | } \hline \text { In Singapore \$ } & \text { Lee Ltd } & \text { Kew Ltd } \\\hline \text { Equipment (purchased 1 July 2012, revalued 1 June 2014) } & 694850 & 214700 \\\hline \text { Debentures (issued 1 June 2014) } & 962100 & 962100 \\\hline \text { Inventory on hand(second quarter 2015) } & 72692 & 53000 \\\hline \text { Depreciation expense-equipment } & 57780 & 26838 \\\hline \text { Share capital at acquisition of foreign subsidiary } & 4208000 & 2104000 \\\hline \text { Sales revenue (earned evenly over the period) } & 909500 & 727600 \\\hline\end{array}$$ Which of the following translation processes were applied to Lee Ltd and Kew Ltd,respectively,for the year ended 30 June 2015?

A) functional currency; presentation currency
B) functional currency; functional currency
C) presentation currency; functional currency
D) presentation currency; presentation currency

Question 51

Explain how non-controlling interests are determined following the translation of the financial statements.

Question 52

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

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.