F2B - Chapter 10: Foreign currency transactions

Question 1

What does IAS 21 dela with?

Answer 1

The definition of functional and presentation currencies
Accounting for individual transactions in a foreign currency
Translating the financial statements of a foreign subsidiary

Question 2

What is functional currency?

Answer 2

The currency of the primary economic environment in which the entity operates

Question 3

What should an entity consider when determining its functional currency?

Answer 3

The currency that mainly influences sales prices for goods and services
The currency of the country whose competitive forces and regulations mainly determine the sales prices of goods and services
The currency that mainly influences labour, material and other costs of providing goods and services
The currency in which funding from issuing debt and equity is generated
The currency in which receipts from operating activities are usually retained

Question 4

What is presentation currency?

Answer 4

Currency in which the entity presents its financial statements.

Question 5

How do we record the foreign currency transaction?

Answer 5

Recorded by applying the spot exchange rate

Question 6

How do we treat any outstanding foreign currency balances when they are monetary items?

Answer 6

Retranslate using the closing rate (Year-end exchange rate)

Question 7

How do we treat any outstanding foreign currency balances when they are non-monetary items?

Answer 7

Do not translate (leave at historic rate)