Price Level-Foreign Exchange Flashcards
Functional Currency is Neither Local Currency nor Reporting Currency
If the functional currency is a foreign currency other than the local currency, then the foreign currency statements are first remeasured in the functional currency before they are translated to US dollars using the current rate method.
Fair Value Hedge of an exposed asset and liability (ASC 815)
Gains and losses are recognized currently
The measuring units that can be used to measure either attribute are?
Nominal dollars or Constant dollars
ASC 815 requires US companies with foreign subsidiaries whose functional currency is the local currency to translate the subsidiary’s financial statement into US dollars using the current-rate method.
This method produced a translation adjustment for the period that is reported as other comprehensive income
Monetary items
Sums of money whose amount is fixed or determinable without reference to future prices of specific goods or services
Foreign Currency Transactions
A change in the exchange rate between the foreign currency and the dollar results in a gain or loss that is recognized in determining the dollar net income for the period in which the rate changes.
Cash Flow Hedge of a forecasted transaction denominated in foreign currency (ASC 815)
Gains and losses are recognized in comprehensive income
Main IFRS difference in Foreign Exchange
Foreign currency and derivatives IFRS require that an entity reports its measurement currency. This US does not have this rule.
The cost that would be incurred at the present time.
Current cost
Accounting for Foreign Currency — ASC 815
Encompasses both expressing in dollars transactions denominated in a foreign currency, and expressing in dollars the foreign-currency-based financial statements of a subsidiary.
_________ is the only relevant measure for derivative instruments.
Fair value
Attributes of assets that accountants might measure are?
Historical cost or Current cost
Speculation of foreign currency
Gain and losses are recognized currently based on foreign exchange rates.
Historical Cost / Constant Dollar
(Current period CPI-U) / (Base period CPI-U) = Conversion factorConsumer Price Index-Urban (CPI-U)The period whose nominal dollars are being restated is called the base periodThe period into whose dollars’ purchasing power the nominal dollars are being restated is the current period
An asset or liability is “denominated” in foreign currency
When asset and liability amounts are fixed in terms of a foreign currency regardless of exchange rate changes.
Dollars that are restated to reflect changed in purchasing power.
Constant Dollars
Fair Value Hedge of a firm commitment. (ASC 815)
Gains and losses are recognized currently.
Functional Currency is the Reporting Currency.
Entity whose operations are integrated with those of the parent, whose buying and selling activities are primarily in the parent’s country and/or the parent’s currency, and whose cash flows are available for remittance to the parent.
Historical exchange price experienced in an actual transaction.
Historical cost
Functional Currency
Currency of the primary economic environment in which the entity operates.
ASC 255
Entails disclosing certain amounts which would appear in current cost/constant dollar financial statements.
True or False? In ASC 815 Derivative instruments that meet the definition of assets and liabilities should be reported in the financial statements.
True. Derivative instruments that meet the definition of assets and liabilities should be reported in the financial statements.
Hedge of a Net Investment in a foreign entity.
Gains or losses are reported in comprehensive income as part of the translation adjustment.
Dollars that are not adjusted to reflect changes in purchasing power.
Nominal Dollars
An Asset or Liability is “measured” in foreign currency
To quantify an attribute of an item in a unit of measure other than the reporting currency.
