FAR 6.4 - Foreign Currency Accounting Flashcards

1
Q

Transactions with a foreign entity denominated in a foreign currency

A

Foreign currency transactions

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2
Q

The conversion of financial statements of a foreign entity into financial statements expressed in the domestic currency:

A

Foreign currency translation

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3
Q

This method of exchange rate is the domestic price of one unit of another currency:

A

Direct method

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4
Q

This method of exchange rate is the foreign price of one unit of the domestic currency:

A

Indirect method

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5
Q

What items are the following exchange rates used for:
Current rate
Historical rate
Weighted average rate

A

Current: bs items
Historical: equity
Weighted average: is items

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6
Q

The currency of the primary economic environment in which the entity operates, usually the local currency or the reporting currency:

A

Functional currency

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7
Q

Foreign currency translation is used if:
Foreign currency remeasurement is used it:

A

Translation if : sub has functional currency
Remeasurement if : dysfunctional currency used by sub

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8
Q

Monetary items are:
Non-monetary items are:

A

Monetary: fixed regardless of changes in specific prices or the general price level (AR)
Non-monetary: fluctuate in value with inflation and deflation (building)

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9
Q

Under the remeasurement method, the financial statements are remeasured to the functional currency in the following order and using the following rates:

A

1st balance sheet
- monetary items use the current rate
- non monetary items use the historical rate

2nd income statement
- non-balance sheet items use the weighted average raate
- balance sheet items use the historical rate

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10
Q

Under the remeasurement method, which account is plugged to get the required amount needed to adjust retained earnings in order to make the balance sheet balance?

A

Currency gain/loss in net income

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11
Q

Under the translation method, the financial statements are translated to the functional currency in the following order and using the following rates:

A

1st: income statement
- all items use weighted average method

2nd: balance sheet
- assets and liabilities use the current rate
- common stock & APIC use the historical rate
- retained earnings are rolled forward

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12
Q

Under the translation method, which account is plugged to balance the debt is and credits in the translated balance sheet?

A

Translation adjustment to OCI

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