FR - Foreign currency translation

Question 1

Explain what is foreign operation

Answer 1

• Is an entity that is a subsidiary, associate, JV or branch of a reporting entity, activities of which are based or conducted in a country or currency that is different from reporting company

Question 2

What are the primary factors influencing the foreign currency unit under IAS 21

Answer 2

1. Currency influencing sales price for goods and service
2. Currency of the country whose competitive forces and regulations determine sale price
3. Currency mainly influences input cost, including labor and material

Other factors supporting the functional currency
1. Currency in which funds/receipts are done
2. Activities of the foreign operation are carried out as an extension
3. Transaction reports is low or high proportion of foreign operation
4. Cash flow activities of the foreign operation

Question 3

What are the two types of functional currency operation

Answer 3

1. Integrated operation - Functional currency is the CAD
2. Self-sustaining operation - Functional currency is not the Canadian Dollar
   - Is determined based on the method used to translate the financial result of the foreign operation into CAD

Question 4

Explain how the integrated foreign operation is determine

Answer 4

• Operates as the extension of the parent. Is to maintain as if the transaction had been undertaken directly by the parent

Statement of CI
-Revenue and most expenses
- Items that result that originated within report period are translated at the rate in effect on date they are earned or incurred
- Currency exchange rate for the period is stable, revenue and expenses are incurred at average rate for period can be used

COGS
Opening inventory - when inventory was purchase
+ Purchase - at an average rate if purchases are made evenly
- Ending inventory - effect when ending inventory is a purchase
= COGS

Depreciation and amortization
- Expenses incurred to an asset that’s purchased at a point in time. Translated at historical cost

Financing income and expenses
- average rate for the period used to translate

Question 5

For integrated operation, what is the foreign currency on net monetary asset

Answer 5

1. Determine the opening new monetary position in foreign currency & translate this balance using the closing rate
   2 Detail change that contributed to a change in net monetary position during the year
2. Translate the item in Step 2 using the appropriate exchange
3. Calculate the closing balance of net monetary items in both foreign subsidiary and parent presentation (Adding and subtracting items in Step 2 to the opening balance in Step 1)
4. Calculate the closing net monetary position independently from SFP to ensure non-changes missed in Step 2.
5. Compare the amount calculated in Step 4 with the amount translated in Step 5. Difference is exchange gain/loss on translation net monetary asset flow

Question 6

Provide what the rate would be used for the statement of FP and shares

Answer 6

Monetary item - Receivable, payable, laons - closing rate
Gain or losses - translated when they occur
Shares - preferred share classified as equity are translated at a historical rate from later of date of issuance and the date the parent purchase
Calculated:
1. Opening R/E is the translated amount from prior year
2. Profit or loss is the amount calculated on translated SCI
3. Dividends are translated at the date of declaration

Question 7

Explain how self-sustaining foreign operation is used

Answer 7

• Foreign operation with functional currency that is different from reporting entity, operates independently of the parent

Statement of CI
- Revenue and expenses incur evenly over period on average rate for period

Process of foreign currency gain or loss net asset
Opening net asset - Prior year closing rate
=+/- Profit/ loss - Average for period
= - Cash dividends - declaration date
=+/- Shares issued or repurchase - Date of transaction
= Closing net asset (calculated) - Calculate position
=Closing net asset (from SFP) - current year closing rate

Statement of FP
- Monetary & nonmonetary asset/ liabilities - closing rate

Share - Common and preferred shares presented as equity translated at the historical rate of the date of insurance.

Retain earning
Opening R/E is earning translated amount from prior year
=+/- profit/ loss is the amount calculated on translated SCI
=- Dividend are translated at date of declaration

Question 8

What is the difference between IFRS and ASPE

Answer 8

ASPE 1651 - using integrated & self-sustaining method
Temporal method (integrated operation method) under ASPE
Current rate method (self-sustaining method) under ASPE