Foreign Currency - 20E

Question 1

What two methods are used for Foreign Currency Translation?

Answer 1

1. Current Rate Method

2. Remeasurement Method

Question 2

What is the spot rate also known as?

Answer 2

Current rate as of the B/S date

Question 3

How is the Current Rate Method calculated?

Answer 3

Key word - “Translated”

Functional Currency = Local Currency Unit as long as NO HIGH INFLATION

Asset - Current Rate
Liabilities - Current Rate
Owners Equity - Historical Rate (But R/E is a calculation)
Revenues, Expenses, G/L - Weighted Average Rate for the year

FC Translation Gain/Loss is shown as cumulative Translation Adjustment in OCI

Question 4

What is the Historical Rate?

Answer 4

The rate that was used when the Equity was recorded

Ex: If Common Stock was issued 5 years ago, then the rate used is the rate from 5 years ago

Question 5

How do you calculate R/E under the Current Rate Method?

Answer 5

Beg R/E
+ Net Income (Based on Avg Rate)
- Dividends (Historical Rate)
= End R/E

Question 6

What causes a Gain/Loss under the Current Rate Method?

Answer 6

A = L + SHE are all calculated using different rates which will not equal.

The difference is plugged to make the equation balance which will be recorded as your gain or loss

Question 7

How is the Remeasurement Method calculated?

Answer 7

Functional Currency = US$ or Local Currency Unit in highly inflationary economy (100% over 3 years)

Assets

• Monetary - Current Rate
• Non Monetary - Historical
• Exception: Items carried at market will use the current rate!!!

Liabilities
- Monetary - Current Rate
- Non Monetary - Historical
Owners Equity - Historical Rate (R/E is calculated)
Revenues, Expenses, G/L - Weighted Average Rate EXCEPT:
- Amortization & Depr - Historical

FC Translation G/L is shown as component of Income from Continuing Operations

Question 8

What is Functional Currency?

Answer 8

Inflows and Outflows of cash

Question 9

What is Presentation Currency?

Answer 9

The currency in which the financial statements are presented

Question 10

Under IFRS, when the Functional Currency does not equal the Presentation Currency?

Answer 10

Asset & Liab - Current Rate
Owner Equity - Historical Rate (R/E is calculated)
Revenues, Expenses, & G/L - Historical Rate, but he W/A Rate may be used

FC Transaction G/L - OCI

Question 11

Under IFRS, when the Functional Currency equals the Presentation Currency?

Answer 11

Asset & Liab
- Monetary - Current RAte
- Non Monetary - Historical Cost = Historical Rate
- Non Monetary - Fair Value - Rate when Fair Value was determined
Owners Equity - Historical Rate (R/E is calculated)
Revenues, Expenses, & G/L - Historical Rate, but may use the W/A Rate

FC Transaction G/L - P/L except for non monetary items which go into OCI

Question 12

Under IFRS, what are the three types of currency?

Answer 12

1. Functional
2. Foreign
3. Presentation

Question 13

Which rates may be used to translate the cash flow statement?

Answer 13

1. Historical

2. Weighted Average

Question 14

How do you figure the indirect quotation from the direct quotation?

Answer 14

Compute the Inverse

Ex: What is the indirect quotation of .90 to 1?
1 to .90