Foreign Transactions and Entities

Question 1

How is a functional currency defined?

Answer 1

The currency of the primary economic environment in which the entity operates

Question 2

What extra consideration is there with functional currency of a foreign subsidiary?

Answer 2

• the autonomy of a foreign operation from the operating entity

None/little - same functional currency
Autonomous - own functional currency

Question 3

For individual foreign currency transactions on items that maybe revalued, where does the retranslation gain or loss get posted?

Answer 3

OCI -

Question 4

For individual foreign currency transactions on items that maybe revalued, where does the retranslation gain or loss get posted?

Answer 4

Follow revaluation/impairment rules

• PPE - OCI not reclassified
• Investment Property - P/L
• Equities - P/L unless irrevocable election to OCI
• Overseas Inventory (impaired) - P/L

Question 5

What is the initial recognition of translating foreign currency amounts into functional currency?

Answer 5

Applying relevant spot exchange rate at the date of transaction

Question 6

For translation of a foreign subsidiary, how are income and expenses translated?

Answer 6

Restated at average rate

Question 7

For translation of a foreign subsidiary, how are share capital and post acquisition reserves translated?

Answer 7

Restated at historic rate

Question 8

For translation of a foreign subsidiary, how is goodwill translated?

Answer 8

Restated at closing rate