FAR Module 20E

Question 1

Define a Foreign Currency Translation

Answer 1

This is where you convert entire sets of financial statements to US Dollars from a Foreign Currency

Question 2

How is a Foreign Currency Translation different from a Foreign Currency Transaction?

Answer 2

Foreign Currency Transactions are when you have a purchase/sale where the money exchanged is not in US Dollars. This is only for one transaction, whereas a Foreign Currency Translation is for entire sets of Financial Statements

Question 3

Define a Foreign Currency Statement

Answer 3

Financial statements that use (as the unit of measurement) a functional currency that is not the reporting currency of the enterprise.

Question 4

What are the two methods of foreign currency translations?

Answer 4

Current Rate Method

Remeasurement Method

Question 5

What is a keyword that tells you that the question is regarding the Current Rate Method?

Answer 5

Translating

Question 6

What is a keyword that tells you that the question is regarding the Remeasurement Method?

Answer 6

Remeasuring

Question 7

Under the Current Rate Method, Assets are translated using what rate?

Answer 7

The Current Rate

also known as the Spot Rate at the Balance Sheet Date

Question 8

Under the Current Rate Method, Liabilities are translated using what rate?

Answer 8

The Current Rate

also known as the Spot Rate at the Balance Sheet Date

Question 9

Under the Current Rate Method, SHE is translated using what rate?

Answer 9

Anything other than Retained Earnings uses the Historical Rate.

Retained Earnings has its own calculation

Question 10

Under the Current Rate Method Revenues, Expenses, Gains/Losses are translated using what rate?

Answer 10

The Weighted-Average Rate for that Year

Question 11

Under the Current Rate Method, Foreign Currency Translation Gain/Loss is shown how?

Answer 11

as a Cumulative Translation Adjustment in

Other Comprehensive Income

Question 12

Under the Current Rate Method, what is the Functional Currency?

Answer 12

The LCU (Local Currency Unit)
as long as there is no high inflation

Question 13

Under the Remeasurement Method, Assets are remeasured using what rate?

Answer 13

Monetary Assets = Current Rate

Nonmonetary Assets = Historical Rate

Question 14

Under the Remeasurement Method, Liabilities are remeasured using what rate?

Answer 14

Monetary Liabilities = Current Rate

Nonmonetary Liabilities = Historical Rate

Question 15

Under the Remeasurement Method, SHE is remeasured using what rate?

Answer 15

Anything other than Retained Earnings uses the Historical Rate.

Retained Earnings has its own calculation

Question 16

Under the Remeasurement Method Revenues, Expenses, Gains/Loss are remeasured using what rate? Are there any exceptions?

Answer 16

The Weighted-Average Rate for that Year

The exception is for Amortization/Depreciation Expense which is remeasured using the Historical Rate

Question 17

Under the Remeasurement Method Foreign Currency Translation Gain/Loss is shown as

Answer 17

a component of Income from Continuing Operations, the “I” of “IDE” on the Income Statement.

Question 18

Under the Remeasurement Method what is the Functional Currency?

Answer 18

US $

OR the LCU (Local Currency Unit) in a highly inflationary economy

Question 19

Define a highly inflationary Economy

Answer 19

100% inflation over 3 years (doesn’t have to be equal, like 33% a year, just overall)

Question 20

T/F

When translating, or remeasuring financial statements there will be a gain/loss to make the equation (A = L + SHE) balance. A Loss will be a Debit, a Gain will be a Credit.

Answer 20

TRUE

Question 21

What is the equation for Retained Earnings used both in the Current Rate Method & the Remeasurement Method

Answer 21

Beg RE
+/- Net Income/Net Loss (weighted average rate)
- Dividends (Historical Rate)
= Ending RE

Question 22

What are the IFRS equivalents of the Current Rate Method & the Remeasurement Method

Answer 22

Current Rate under IFRS = Functional Currency does not equal the Presentation Currency

Remeasurement Method under IFRS = Functional Currency equals the Presentation Currency

Question 23

Define functional currency under IFRS

Answer 23

Currency of the primary economic environment in which the entity operates

Question 24

Define foreign currency under IFRS

Answer 24

Currency other than the functional currency

Question 25

Define presentation currency under IFRS

Answer 25

Currency in which the financial statements are presented.

Question 26

Under IFRS when the Functional Currency does not equal the Presentation Currency, how are Assets and Liabilities dealt with?

Answer 26

The Current Rate

Question 27

Under IFRS when the Functional Currency does not equal the Presentation Currency, how is SHE dealt with?

Answer 27

Anything other than Retained Earnings uses the Historical Rate.

Retained Earnings has its own calculation

Question 28

Under IFRS when the Functional Currency does not equal the Presentation Currency, how are Revenues, Expenses, Gains/Losses dealt with?

Answer 28

Historical Rate, but may use Weighted Average Rate

Question 29

Under IFRS when the Functional Currency does not equal the Presentation Currency, how are Foreign Currency TL Gain/Loss dealt with?

Answer 29

Go to Other Comprehensive Income

Question 30

Under IFRS when the Functional Currency equals the Presentation Currency, how are Assets and Liabilities dealt with?

Answer 30

Monetary = Current Rate (aka Spot Rate @ B/S Date)
NonMonetary  = Historical Cost or Fair Value

Question 31

Under IFRS when the Functional Currency equals the Presentation Currency, how is SHE dealt with?

Answer 31

Anything other than Retained Earnings uses the Historical Rate.

Retained Earnings has its own calculation

Question 32

Under IFRS when the Functional Currency equals the Presentation Currency, how are Revenues, Expenses, Gains/Losses dealt with?

Answer 32

Historical Rate, but may use Weighted Average Rate

Question 33

Under IFRS when the Functional Currency equals the Presentation Currency, how are Foreign Currency TL Gain/Loss dealt with?

Answer 33

Profit/Loss

Exception is for those FC TL G/L on Nonmonetary items whose G/L normally goes to Other Comprehensive Income, then FC TL G/L goes to OCI, also.