Foreign Operation

Question 1

If a company has a foreign subsidiary where should the foreign exchange adjustment be reported in the parent financial statements?

Answer 1

A company that has an investment in a foreign subsidiary always have to include the subsidiary into the consolidated financial statements, however it must covert it from the local currency into the parent’s reporting currency. The translation adjustment is always included in the other comprehensive income (OCI) and reported on the parent’s consolidated balance sheet.

Question 2

When is a cash flow hedge most appropriate?

Answer 2

A cash flow hedge is most appropriate when a firm/company has an adjustable-rate note payable and enters into an interest swap to pay a fixed rate.

Question 3

How do calculate translation from any currency to USD when preparing the assets & liabilities and revenue
& expenses on financial statement?

Answer 3

Assets & liabilities are always translated using the current exchange rate as of the balance sheet date.
Revenues and expenses always uses a weighted average exchange rate for the entire period of time.

Question 4

When is a currency remeasured?

Answer 4

A currency is remeasured when a transaction occurs in a currency other than the company’s functional currency, then the transaction is remeasured to the functional currency.

Question 5

What are the Fair value hedge requirements?

Answer 5

1. There must be a documentation of the relationship between the hedge and the hedged risk.
2. There must also be an indication that the hedge os expected to be highly effective.
3. There should be an explanation of how the entity measures the hedge’s effectiveness.

Question 6

What proves a foreign exchange gains and losses is occurred?

Answer 6

An exchange gain occurs when the exchange rate increases between the date a receivable is recorded and the date of cash receipt.

Question 7

What are the types of currencies?

Answer 7

1. Transactional - this is the local currency which is usually the currency of books and records
2. Functional - this is the greatest economic impact; usually the currency a company uses to generate and expend cash
3. Reporting - this currency is used to prepare financial statements.