Foreign Operations

Question 1

Types of currency

Answer 1

Transactional - local currency
Functional - where company makes and uses greatest amount of cash
Reporting - Used to prepare F/S

Question 2

Transaction to Functional conversion

Answer 2

Remeasurement reported on I/S

Question 3

Functional to Reporting

Answer 3

Translation reported in OCI

Question 4

Accounting for foreign currency transactions

Answer 4

B/S

• remeasure using B/S spot rate
• Recognize gain/loss for difference in B/S date vs transaction date

I/S
-remeasure using settlement date spot rate
Recognize gain/loss from B/S date ro settlement date
Settle transaction in foreign currency

Question 5

FV Hedge requirements

Answer 5

• Document relationship between hedge and risk
• Indicate it will be highly effective
• Explain measurement of effectiveness

Question 6

Translation steps

Answer 6

1. Translate IS
   - Rev & exp use weighted avg
   - Gain/loss on FA, transaction date rat
2. Translate BS
   - A and L use BS rate
   - Capital accts use historical rate
3. Roll forward RE
   - Dividends translated use rate on dividend date
4. Recognize translation adjs in OCI