Section 6 - Foreign Operations

Question 1

What is a transactional currency?

Answer 1

The “local recording currency” of a particular country. Usually the books and records are kept in.

Question 2

What is a functional currency?

Answer 2

The currency with the greatest economic impact on the entity’s financial performance.

(Currency in which entity generates and expends cash)

Question 3

What is a reporting currency?

Answer 3

The currency in which the enterprise prepares its financial statements.

Typically US dollars $$$

Question 4

What is the order of foreign currency remeasurement and translation?

Answer 4

Transactional currency –> Functional currency = Remeasurement (Income Statement)

Functional currency –> Reporting currency = Translation (B/S comprehensive income)

Question 5

What is a “spot rate”?

Answer 5

The actual exchange rate on a particular date.

Question 6

What is a “forward rate”?

Answer 6

What the exchange rate is expected to be at some point in the future.

Question 7

What are the terms for IFRS foreign currency transaction and translation?

Answer 7

Foreign Currency (GAAP is transactional)

Functional Currency

Presentation Currency (GAAP is reporting)