chapter 2 financial reporting and foreign currency accounting Flashcards
historical cost and current cost
appreciation
nominal dollars and constant dollars
inflation
monetary item
are fixed
non monetary item
fluctuate in value with inflation and deflation
marketable common stock
non monetary
bonds
monetary
investment in subsidiary
non monetary
depreciation
non monetary
deferred charges and credits
non monetary
allowance for doubtful accounts
monetary contra account are stay with their mama.
direct method of exchange rate
1 euro=1.47$
indirect
1$=0.68euros
current exchange rate=year end/spot rate
=year end/spot rate
forward exchange rate
bet
historical exchange rate
used for equity
weighted average rate
used for income statement
reporting currency
us $
functional currency
currency of primary economic environment
local currency = functional currency if
- foreign operations are self-contained and integrated within the country
- day-to-day operations not depend on parent’s money
- local economy not highly inflationary
remeasurement method
dysfunction. when local currency not functional currency
remeasurement gains or loss
income statement
how to do remeasurement
do B/S first plug RE to get balance then re-do I/S with pre-determined RE
Translation method
normal. when local currency=functional currency
translation gain or loss
OCI
how to do translation
first I/S then B/S
remeasurement rate use
B/S monetary=current
non monetary=fixed
I/S weighted average
depreciation cost of sold amortization=historical
translation rate use
I/S all income statement item=weighted
B/S asset and Liability=current
common stock=historical
transaction not settled at balance sheet date
mark to market use spot rate and unrealized gain or loss on I dea
foreign exchange transaction loss or gain
on I/S
