FRA lvl 2 - Reading 20 (Multinational Ops)

Question 1

Define functional currency

Answer 1

determined by management. Currency that entity generates and expends cash

Question 2

Define presentation currency

Answer 2

currency that the parent company prepares its financial stmts

Question 3

Define remeasurement

Answer 3

converting local currency into functional currency. uses TEMPORAL method.

Question 4

Define translation

Answer 4

converting functional into parents currency. CURRENT method.

Question 5

what method is used when functional and parent’s presentation currency differ but local and functional are the same?

Answer 5

Current rate method

Question 6

what method is used when functional and presentation currency are the same, but local is different?

Answer 6

Temporal method

Question 7

current rate method; income statement is translated using 1. current 2. average or 3. historical?

Answer 7

2. average rate used

Question 8

current rate method; balance sheet is translated using 1. current 2. average or 3. historical?

Answer 8

1. current rate EXCEPT for common stock, which uses historical rate

Question 9

current rate method; balance sheet COMMON STOCK is translated using 1. current 2. average or 3. historical?

Answer 9

3. historical rate applied when stock was issued

Question 10

current rate method; dividends are translated how?

Answer 10

using the rate when they were declared

Question 11

Where and how are translation gains/losses reported?

Answer 11

reported in SHAREHOLDERS EQUITY as part of CTA (cumulative translation adjustment)

Question 12

temporal method; monetary assets are remeasured using 1. current 2. average or 3. historical?

Answer 12

1. current rate

Question 13

temporal method; monetary liabilities are remeasured using 1. current 2. average or 3. historical?

Answer 13

1. current rate

Question 14

temporal method; non monetary assets and liabilities are remeasured using 1. current 2. average or 3. historical?

Answer 14

3. historical rate

Question 15

temporal method; dividends are remeasured how?

Answer 15

3. historical rate just like current method

Question 16

temporal method; revenues are remeasured using 1. current 2. average or 3. historical?

Answer 16

2. average rate

Question 17

where and how are remeasurement gains/losses reported?

Answer 17

income statement, which makes using this method more volatile for NI versus current that puts gain/loss in shareholders’ equity.

Question 18

LVL 1 question reminder: FORMULA; ending retained earnings?

Answer 18

=beg. RE + NI - div paid