FAR-Foreign Operations Flashcards
When do Translation Adjustments Occur?
End of Year
Translation Adjustments hit this statement…
OCI
When do FX remeasurements occur?
As transaction occurs
FX remeasurements hit this statement
Income Statement; Nonoperating
What is a spot rate?
The exchange rate that is effective on a particular date is referred to as a spot rate.
When is it appropriate for a transaction to be remeasured?
When it the transaction occurs in some currency other than the functional currency.
*Example: Company that spends in US Dollars as an expense that is in Canadian Dollars
When is it appropriate for there to be a translation adjustment?
When the functional currency is not the same as the reporting currency
*Example: Company conducts business using the Canadian Dollar, but issues reports in the US Dollar
What steps are taken to report Embedded Instruments?
If the host instrument is reported at fair value, the derivative is also reported at fair value
If the host instrument is not reported at fair value, the derivative will be bifurcated and the host instrument is accounted for sepearately
Translations include assets and liabilities; income statement; and Contributed Capital. What rates are used to translate each of these items?
Assets and Liabilities = Current Rate (balance sheet date)
Income Statement = Weighted Average
Contributed Capital = Historical Rate
Translations include monetary assets and liabilities; non-monetary assets and liabilities; and income statement. What rates are used to translate each of these items?
Monetary assets and liabilities: Current Rate
Non-monetary assets and liabilities: Historical Rate
Income statement: Weighted Average Rate
What are the three elements of a forward contract?
- HAS A SETTLEMENT DATE
- IS NOT EXCHANGE TRADED
- Is accounted for using the forward Rate
What are the three elements of a futures contract?
- HAS A SETTLEMENT DATE
- IS EXCHANGE TRADED
- Is accounted for using the forward Rate
How is the position of a forward contract calculated?
On the date that the forward contract is entered, multiply the notional amount by the forward rate.
On future dates, again multiply the new forward rate by the notional amount.
Subtract both numbers to find the gain or loss
*Note: If the forward contract goes across calendar years, then the gain or loss recognized for the following years will only include the forward rate the was in place at the start of that calendar year
How to calculate the loss or gain of an payable along with a hedge that has a loss or gain?
- Find loss/gain of the payable.
- Find the loss/gain of the hedge
- Net the two together
Where is the gains/loss of a fair value hedge, and the gains/loss of its hedged items reported?
Fair value hedge goes to Income Statement. The hedged items also go to income statement. For example: The gain/loss from an available for sale security is normally recorded in OCI, but if it is hedged it is recorded on the I/S.
