Foreign currency

Question 1

What are the four methods of measuring prices and effects of price changes

Answer 1

Historic cost-The actual exchange value in the dollars at that time an asset was acquired or a liability was assumed
Current cost- The cost that would be incurred at the present time the replacement cost. Use the recoverable amount if lower
Nominal dollars-unadjusted for change in purchase power
Constant Dollars- Dollars restated based on calculation of CPI ratios.

Question 2

Adjustments

Answer 2

Historic Cost/Nominal Dollars- Neither
Historic Cost/Constant dollars-Inflation
Current Cost/Nominal Dollars-Appreciation
Current Cost/Constant Dollars-Both

Question 3

Foreign Currency accounting

Answer 3

Foreign currency transactions

Foreign currency translations

Question 4

What is Direct and Indirect Method

Answer 4

The direct method is one unit of another currency

The indirect method is the foreign price of one unit of the domestic currency

Question 5

Current Exchange Rate

Answer 5

Year end/spot rate. Typically use this for all of your balance sheet accounts

Question 6

Forward Exchange rate=bet

Answer 6

Exchange rate exists now for two currencies at a specific future date

Question 7

Historical Exchange rate

Answer 7

used for equity

Question 8

Weighted Average Rate

Answer 8

Used for Income statement

Question 9

Reporting Currency

Answer 9

Currency of the entity ultimately reporting financial result

Question 10

Functional Currency

Answer 10

The functional currency is the currency of the primary economic environment

Question 11

Remeasurement Method- temporal method

Answer 11

Monetary Items= Current/year end rate
Non-Monetary terms= Historical rate
Income Statement=Non Balance sheet releated items= Weighted Average method
Balance sheet related items= Historical rate

Question 12

Translation Method-(Current Rate Method)

Answer 12

Foreign Currency =Functional Currency
I/S
 All income statement Items=weighted average method
Transfer Net Income to retained earnings
Assets=Current/year end rate
Liablities=Current/year end rate
Common Stock/ APIC= Historical rate

Question 13

Translation-

Functional

Answer 13

1st step- Income Statement@weighted Average
2nd Step: Balance Sheet: @year end
C?S &APIC@historical
Roll forward R/E 
plg-Equity/AOCI
reported-puffer

Question 14

Remeasurement

Answer 14

Balance Sheet-Monetary@year end rate
Non-monetary @ historical

I/S@weighted average
Historical for balance sheet related accounts
Gain loss si I/S is atamount necessary for R.Eplug
IDEA

Question 15

Single foreign Currency Transaction

Answer 15

Transaction not settled at Balance sheet date=Market to market

Question 16

what is Re-measurement

Answer 16

Re-Measurement is if there is US parent company and subsidiary company in Mexico and all the transactions, Purchase sales, COGs are happening in USA. Then the transactions are remeasured for consolidation

Question 17

What is translation

Answer 17

If a foreign company a subsidiary of US company and all transaction are happening in canada, and when the LC and RC are same then the process of reporting for financial statements is called translation

Question 18

Acing for Remeasurement and translation

Answer 18

Remeasurement goes to income statement

Translation goes to B/S

Question 19

What does fair value hedge does

Answer 19

It converts fixed price to floating price

Question 20

what does cash flow hedge does

Answer 20

It converts Floating price to fixed price

Question 21

Option pricing model

Answer 21

Exchange Traded option-Market price quote-FV
Over-the counter-traded option-Dealer price quote-FV
Option not traded in active market-use option pricing mode;
For Ex- Modified-Black Scholes model
Option premium reflects FV of option

Question 22

Call option

Put Option

Answer 22

Right to buy

Right to sell

Question 23

Hyperiflatory ecoomy

Answer 23

when the past three years of the economy inflation is 100% or more it is called as hyper inflatory economy