FAR 2 Financial reporting

Question 1

Historic cost (appreciation)

Answer 1

the actual exchange value in the dollars at that time an asset was acquired or a liability assumed

Question 2

Current cost (appreciation)

Answer 2

the cost that would be incurred at the present time, the replacement cost. Use the recoverable amount if lower

Question 3

Nominal dollars (inflation)

Answer 3

unadjusted for changes in purchasing power

Question 4

Constant dollars (inflation)

Answer 4

dollars restated based on calculations of CPI ratios.

Question 5

Methods of measuring prices and the effects of price changes

Answer 5

1. Historic Cost/Nominal Dollars
2. Historic Cost/Constant Dollars
3. Current Cost/Nominal Dollars
4. Current Cost/Constant Dollars

Question 6

Foreign Currency Transactions

Answer 6

transactions with a foreign entity denominated in a foreign currency

Question 7

Foreign Currency Translations

Answer 7

conversion of financial statements of a foreign entity into financial statements expressed in the domestic currency

Question 8

Exchange rate

Answer 8

1. Direct method - one euro buys $1.47

2. Indirect method - .68 euro buys $1

Question 9

Forward exchange rate

Answer 9

the exchange rate existing now for exchanging two currencies at a specific future date

Question 10

Historical exchange rate

Answer 10

the rate in effect at the date of issuance of stock or acquisition of assets

Question 11

Weighted Average Rate

Answer 11

takes into account fluctuation of the exchange rate

Question 12

Forward exchange contract

Answer 12

an agreement to exchange at a future specified date and rate a fixed amount of currencies

Question 13

Denominated or fixed in a currency

Answer 13

used to negotiate and settle the transaction

Question 14

Reporting currency

Answer 14

currency of the entity ultimately reporting financial results of the foreign entity

Question 15

Functional currency

Answer 15

the currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency

Question 16

Foreign currency translation

Answer 16

the restatement of financial statements denominated in the functional currency to the reporting currency using appropriate rates of exchange

Question 17

Foreign currency remeasurement

Answer 17

the restatement of foreign financial statements from the foreign currency to the entity’s functional currency :

• the reporting currency is functional currency
• FS must be restated in the entity’s functional currency prior to translating the FS from the functional currency to the reporting currency

Question 18

Remeasurement method (temporal method)

Answer 18

1. Balance sheet
   - monetary items - current/year end rate
   - nonmonetary items - historical rate
2. Income statement
   - nonbalance sheet related items - weighted average
   - balance sheet related items - historical rate
3. Remeasurement gain or loss - income statement, plug currency gain or loss

Question 19

Translation method (current rate method)

Answer 19

1. Balance sheet
   - assets and liabilities - current/year end rate
   - common stock = historical rate
   - retained earning - roll forward
2. Income statement - weighted average
3. Translation gains and losses (other comprehensive income)