Lectures 7 - 11

Question 1

foreign currency transaction is one that

Answer 1

requires settlement in a currency other than the entity’s home currency

Question 2

foreign operations classified into two types

Answer 2

self sustaining OR

integrated operations

Question 3

self sustaining operations

Answer 3

financially independent of the parent

Question 4

integrated operations

Answer 4

isn’t independent of the parent

Question 5

functional currency

Answer 5

the currency of the environment in which the entity operates in

Question 6

presentation/reporting currency

Answer 6

the currency in which the financial statements are prepared in

Question 7

temporal method is used if

Answer 7

foreign operations are important to the operations of reporting entity

Question 8

closing rate / current rate method is used if

Answer 8

foreign operations are considered to be foreign entities

Question 9

Temporal Method

Answer 9

Current b/s rate - cash, receivables and liabilities
Historical rate - inventory, assets, cost of sales and depreciations
Average rate - revenues and expenses

Question 10

Current (closing) Method

Answer 10

Current b/s rate - assets, liabilities and depreciation
Historical rate - stockholders equity
Average rate - revenues and expense

Question 11

difficulty w/ foreign currency transactions

Answer 11

prudence vs accruals
undesirable effects due to weak currencies
hyper inflationary cases

Question 12

A financial instrument is

Answer 12

any contract that gives rise to a financial asset of one entity and a financial liability of another entity

Question 13

A financial asset is

Answer 13

cash, an equity instrument or a contractual right

Question 14

A financial liability is

Answer 14

a contractual obligation, to deliver cash or another financial asset to another entity

Question 15

compound instruments

Answer 15

may contain both debt and equity elements - should be split into its liability and equity parts

Question 16

3 ways to classify financial assets

Answer 16

amortised costs, FVTP/L, FVTOCI

Question 17

credit risk

Answer 17

the degree to which it’s likely that a borrower/debtor may not repay a loan or debt

Question 18

hedging

Answer 18

a mechanism to mitigate risks by limiting the probability of loss from fluctuations

Question 19

amortised costs

Answer 19

initial acquisition LESS
principal repayment PLUS/MINUS
amortisation of discount PLUS/MINUS
fx less impairment losses

Question 20

FVTPL

Answer 20

asset measured at fair value and changes to it are recognised in profit/loss statement

Question 21

FVTOCI

Answer 21

asset measured at fair value but changes are measured in other comprehensive income

Question 22

2 types of pension plans

Answer 22

defined contribution plan

defined benefit plan

Question 23

defined contribution plan is

Answer 23

employer pays a fixed contribution into a fund

contribution is noted as an expense

Question 24

defined benefit plan is

Answer 24

what employees get at retirement is defined in advance

Question 25

Present value of defined benefit obligation is

Answer 25

expected benefits.

DBO isnt shown in BS. instead worksheets are used.

Question 26

measurement of pension asset on BS

Answer 26

if benefit plan is over funded then a pension asset is recorded on BS

Question 27

measurement of pension liability on BS

Answer 27

if benefit plan is under funded then a pension liability is recorded on BS

Question 28

measurement of pension liability

Answer 28

beginning of defined benefit obligation 
\+current service cost
\+current interest cost 
\+past service cost
- benefits paid out
\+/- actuarial losses or gains
Ending defined obligation

Question 29

measurement of pension asset

Answer 29

Beginning FV of plans assets
\+actual returns on plan assets
\+expected returns on plan assets
\+contributions from employers
-benefits paid out
Ending fair value of plans assets

Question 30

measurement of pension expense

Answer 30

Pension expense
-current service cost
-current interest cost
\+interest income 
\+returns on plans assets
\+/- amortisation of actuarial loss/gain or past service cost/benefit

Question 31

where to record?

Answer 31

service cost and net interest - Profit or Loss

Remeasurements - OCI

Question 32

asset ceiling

Answer 32

defined as the present value of any economic benefits available