FAR 2 Financial reporting Flashcards
Historic cost (appreciation)
the actual exchange value in the dollars at that time an asset was acquired or a liability assumed
Current cost (appreciation)
the cost that would be incurred at the present time, the replacement cost. Use the recoverable amount if lower
Nominal dollars (inflation)
unadjusted for changes in purchasing power
Constant dollars (inflation)
dollars restated based on calculations of CPI ratios.
Methods of measuring prices and the effects of price changes
- Historic Cost/Nominal Dollars
- Historic Cost/Constant Dollars
- Current Cost/Nominal Dollars
- Current Cost/Constant Dollars
Foreign Currency Transactions
transactions with a foreign entity denominated in a foreign currency
Foreign Currency Translations
conversion of financial statements of a foreign entity into financial statements expressed in the domestic currency
Exchange rate
- Direct method - one euro buys $1.47
2. Indirect method - .68 euro buys $1
Forward exchange rate
the exchange rate existing now for exchanging two currencies at a specific future date
Historical exchange rate
the rate in effect at the date of issuance of stock or acquisition of assets
Weighted Average Rate
takes into account fluctuation of the exchange rate
Forward exchange contract
an agreement to exchange at a future specified date and rate a fixed amount of currencies
Denominated or fixed in a currency
used to negotiate and settle the transaction
Reporting currency
currency of the entity ultimately reporting financial results of the foreign entity
Functional currency
the currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency
Foreign currency translation
the restatement of financial statements denominated in the functional currency to the reporting currency using appropriate rates of exchange
Foreign currency remeasurement
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
Remeasurement method (temporal method)
- Balance sheet
- monetary items - current/year end rate
- nonmonetary items - historical rate - Income statement
- nonbalance sheet related items - weighted average
- balance sheet related items - historical rate - Remeasurement gain or loss - income statement, plug currency gain or loss
Translation method (current rate method)
- Balance sheet
- assets and liabilities - current/year end rate
- common stock = historical rate
- retained earning - roll forward - Income statement - weighted average
- Translation gains and losses (other comprehensive income)