FAR Module 20E Flashcards
Define a Foreign Currency Translation
This is where you convert entire sets of financial statements to US Dollars from a Foreign Currency
How is a Foreign Currency Translation different from a Foreign Currency Transaction?
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
Define a Foreign Currency Statement
Financial statements that use (as the unit of measurement) a functional currency that is not the reporting currency of the enterprise.
What are the two methods of foreign currency translations?
Current Rate Method
Remeasurement Method
What is a keyword that tells you that the question is regarding the Current Rate Method?
Translating
What is a keyword that tells you that the question is regarding the Remeasurement Method?
Remeasuring
Under the Current Rate Method, Assets are translated using what rate?
The Current Rate
also known as the Spot Rate at the Balance Sheet Date
Under the Current Rate Method, Liabilities are translated using what rate?
The Current Rate
also known as the Spot Rate at the Balance Sheet Date
Under the Current Rate Method, SHE is translated using what rate?
Anything other than Retained Earnings uses the Historical Rate.
Retained Earnings has its own calculation
Under the Current Rate Method Revenues, Expenses, Gains/Losses are translated using what rate?
The Weighted-Average Rate for that Year
Under the Current Rate Method, Foreign Currency Translation Gain/Loss is shown how?
as a Cumulative Translation Adjustment in
Other Comprehensive Income
Under the Current Rate Method, what is the Functional Currency?
The LCU (Local Currency Unit) as long as there is no high inflation
Under the Remeasurement Method, Assets are remeasured using what rate?
Monetary Assets = Current Rate
Nonmonetary Assets = Historical Rate
Under the Remeasurement Method, Liabilities are remeasured using what rate?
Monetary Liabilities = Current Rate
Nonmonetary Liabilities = Historical Rate
Under the Remeasurement Method, SHE is remeasured using what rate?
Anything other than Retained Earnings uses the Historical Rate.
Retained Earnings has its own calculation
Under the Remeasurement Method Revenues, Expenses, Gains/Loss are remeasured using what rate? Are there any exceptions?
The Weighted-Average Rate for that Year
The exception is for Amortization/Depreciation Expense which is remeasured using the Historical Rate
Under the Remeasurement Method Foreign Currency Translation Gain/Loss is shown as
a component of Income from Continuing Operations, the “I” of “IDE” on the Income Statement.
Under the Remeasurement Method what is the Functional Currency?
US $
OR the LCU (Local Currency Unit) in a highly inflationary economy
Define a highly inflationary Economy
100% inflation over 3 years (doesn’t have to be equal, like 33% a year, just overall)
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.
TRUE
What is the equation for Retained Earnings used both in the Current Rate Method & the Remeasurement Method
Beg RE
+/- Net Income/Net Loss (weighted average rate)
- Dividends (Historical Rate)
= Ending RE
What are the IFRS equivalents of the Current Rate Method & the Remeasurement Method
Current Rate under IFRS = Functional Currency does not equal the Presentation Currency
Remeasurement Method under IFRS = Functional Currency equals the Presentation Currency
Define functional currency under IFRS
Currency of the primary economic environment in which the entity operates
Define foreign currency under IFRS
Currency other than the functional currency
Define presentation currency under IFRS
Currency in which the financial statements are presented.
Under IFRS when the Functional Currency does not equal the Presentation Currency, how are Assets and Liabilities dealt with?
The Current Rate
Under IFRS when the Functional Currency does not equal the Presentation Currency, how is SHE dealt with?
Anything other than Retained Earnings uses the Historical Rate.
Retained Earnings has its own calculation
Under IFRS when the Functional Currency does not equal the Presentation Currency, how are Revenues, Expenses, Gains/Losses dealt with?
Historical Rate, but may use Weighted Average Rate
Under IFRS when the Functional Currency does not equal the Presentation Currency, how are Foreign Currency TL Gain/Loss dealt with?
Go to Other Comprehensive Income
Under IFRS when the Functional Currency equals the Presentation Currency, how are Assets and Liabilities dealt with?
Monetary = Current Rate (aka Spot Rate @ B/S Date) NonMonetary = Historical Cost or Fair Value
Under IFRS when the Functional Currency equals the Presentation Currency, how is SHE dealt with?
Anything other than Retained Earnings uses the Historical Rate.
Retained Earnings has its own calculation
Under IFRS when the Functional Currency equals the Presentation Currency, how are Revenues, Expenses, Gains/Losses dealt with?
Historical Rate, but may use Weighted Average Rate
Under IFRS when the Functional Currency equals the Presentation Currency, how are Foreign Currency TL Gain/Loss dealt with?
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.
