F6M4 Flashcards
Foreign currency transaction
single transaction
Foreign currency translation
entire subsidiaries financial statements
Direct method
one euro costs X
Indirect method
X euros for 1 dollar
currency exchange
spot YE, exchange rate at current date
forward exchange
rate existing now for exchanging in the future
Historical rate
rate at date of issuance
USE FOR EQUITY
Weighted average rate
takes into account fluctuations in the period
USE INCOME STATEMENTS
Functional Currency
Self contained and integrated
does not depend on parent’s current rate
not highly inflationary
When to use translation method and when to use remeasurment method
translation method when functional
re measurement method when dysfunctional
Monetary items
fixed, regardless of changes in specific prices or price level
Non monetary items
items that flucuate with inflation
How to restate financial statements (foreign)
- prepare financial statements with GAAP
- Determine the functional currency (translation or re measurement)
- Determine appropriate exchange rates
- re measure or translate financial statements
Re measurement method
Dysfunctional
- BC
monetary - current/YE
non monetary - histroical - Income statement
non BS items - weighted avg
BC items - historical
Translation method
functional
- IS
weighted average
transfer NI to RE - BS
assets and liabilities: current/YE
CS/APIC: historical
RE: roll forward
