FOREIGN EXCHANGE TRANSACTIONS

Question 1

The following are ways of conducting foreign activities

a. Engaging in foreign currency denominated transactions
b. Having foreign operations
c. Sending personnel abroad for trainings and conferences
d. (a) and (b)

Answer 1

d. (a) and (b)

Question 2

The factors in determining functional currency includes all of the following except

a. The currency that mainly affects the entity’s sales
b. The currency that mainly affects the entity’s cost of sales
c. The currency used in the entity’s financing activities and operating activities
d. The currency used in the entity’s investing activities

Answer 2

d. The currency used in the entity’s investing activities

Question 3

An entity’s functional currency is

a. The currency of the primary economic environment in which the entity operates
b. The currency on which the financial statements have been prepared
c. The currency in the domicile country of the entity
d. All of these

Answer 3

a. The currency of the primary economic environment in which the entity operates

Question 4

A change in functional currency is

a. Accounted for prospectively
b. Accounted for retrospectively
c. Prohibited
d. (b) and (c) with exceptions

Answer 4

a. Accounted for prospectively

Question 5

Once determined, the functional currency

a. Is changed every year depending on the functional currency the entity wishes to use
b. Is not changed unless there is a change in those underlying transactions, events and conditions
c. Is permanent and can never be changed unless the entity undergoes reorganization
d. is changed only when the entity chooses to change its accounting policy. After the change in accounting policy, previous financial statements are restated so that the current year and comparative financial statements are presented using a uniform currency.

Answer 5

b. Is not changed unless there is a change in those underlying transactions, events and conditions

Question 6

According to PAS 21, a reporting entity is

a. Required to identify its functional currency
b. Encouraged to identify its functional currency
c. Required to identify its presentation currency
d. Both (a) and (c)

Answer 6

a. Required to identify its functional currency