FAR 6.4 - Foreign Currency Accounting

Question 1

Transactions with a foreign entity denominated in a foreign currency

Answer 1

Foreign currency transactions

Question 2

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

Answer 2

Foreign currency translation

Question 3

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

Answer 3

Direct method

Question 4

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

Answer 4

Indirect method

Question 5

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

Answer 5

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

Question 6

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

Answer 6

Functional currency

Question 7

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

Answer 7

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

Question 8

Monetary items are:
Non-monetary items are:

Answer 8

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

Question 9

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

Answer 9

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

Question 10

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?

Answer 10

Currency gain/loss in net income

Question 11

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

Answer 11

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

Question 12

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

Answer 12

Translation adjustment to OCI