FOCUS some MoRe Flashcards
In General, WHAT happens to the financial statements of a foreign investee when the functional currency is the foreign currency?
THE Financial Statements of the Foreign Investee are “Translated” rather than “Remeasured”
This is reported in “Other comprehensive Income” on the Balance Sheet
WHAT happens when an investment is “hedged?”
ANY translation loss is recognized in income to offset the gain on the hedge instrument, with the excess translation loss reported in “Other Comprehensive Income”
WHERE are Gains and losses resulting from foreign currency transactions reported?
IN the Income Statement (I/S) in the period on which the exchange rate changes
WHAT must a company document in order to account for a derivative, such as a futures contract as a fair value hedge?
IT Must:
(1) Document the relationship between the hedge and the hedged risk
(2) Explain how the entity intends to measure the effectiveness of the hedge
WHAT is a Great way to remember the different Translation Exchange Rates?
Assets & Liabilities - Current Rate
Income Statement - Weighted Average Rate
Contributed Capital Accounts - Historical Rate
HOW is a Derivative acquired for speculation reported?
AT Fair Value on the Balance Sheet with increases or decreases recognized as Gains or Losses in income
HOW would you describe a Forward Exchange Contract?
As a Derivative, reported at Fair Value on every balance sheet date with unrealized gains and losses recognized in the period of the change in the exchange rate
WHAT Financial Statement involves the Weighted Average Rate?
THE Income Statement (I/S)
i.e. Expenses, Sales, etc.
WHAT Financial Statement involves the “Current” Rate?
Assets and Liabilities
i.e. Balance Sheet accounts
WHAT Financial Statement involves the “Historical” Rate?
Contributed Capital Accounts
i.e. Stockholders’ Equity
WHAT happens when a forward exchange contract is recognized as a cash flow hedge?
NO Gain or Loss will be recognized on the hedge until such time as it affects the hedged transaction
NOTE: Because this is a Cash Flow Hedge, any Gain/ Loss is reported in “Other Comprehensive Income”
WHAT are the proper terms for currencies when dealing with foreign operations under IFRS?
(1) Foreign
(2) Functional; and
(3) Presentation
WHAT would be considered the appropriate Journal Entry when a buyer experiences a gain based on a forward contract rate change?
Dr. Forward Exchange Contract
Cr. Gain on forward Exchange Contract
WHEN is a currency “Remeasured?”
WHEN a transaction occurs in some currency other than the functional currency
NOTE: Remeasurement is reported on the Income Statement (I/S)
WHEN is a currency “Translated?”
WHEN the functional currency is NOT the same as the currency used for reporting
NOTE: Translation is reported on the Balance Sheet (B/S)
