Module 4: Application of Specific Accounting Standards (Part 2)

Question 1

Two main instances where foreign currency must be translated into another currency:
(1)
- If a company trades overseas, it will ___ or ____ assets in f______ c________.
- Ex. an Indian company might buy materials in Canada, pay for them in US dollars, then sell finished goods in Germany, receiving payment in Euro or perhaps some other currency.
- These transactions must be t_________ into the f_________ c________ of the Indian company before they can be recorded in the financial statements.

Answer 1

buy; sell; foreign currencies;
translated; functional currency;

Question 2

Two main instances where foreign currency must be translated into another currency:
(2)
- A company may have a s_______ abroad, and the subsidiary will trade in its own l_____ c________.
- Subsidiary keeps financial records and prepares annual accounts in its ___ c________.
- At year end, parent company must c________ the results of the overseas subsidiary into its _____ financial statements.
- Before this can happen, the financial statements of the subsidiary must be t_________ into the c________ in which the _____ accounts are prepared.

Answer 2

subsidiary; local currency;
own currency;
consolidate; group;
translated; currency; group;

Question 3

Foreign currency:
A ________ other than the _______ _______ of the entity

Answer 3

currency; functional currency;

Question 4

Functional Currency

The _______ of the _______ ________ ___________ in which the entity operates

Answer 4

currency; primary economic environment;

Question 5

Presentation currency

The ________ in which the financial statements are _________

Answer 5

currency; presented;

Question 6

Closing rate

The ____ _________ rate at the ___ of the reporting period

Answer 6

spot exchange; end;

Question 7

Spot exchange rate

The ________ ____ for immediate delivery

Answer 7

exchange rate;

Question 8

Each entity should determine its __________ _________ and measure its _______ and _________ position in that _________

Answer 8

functional currency; results; financial; currency;

Question 9

• For most individual companies, the functional currency is the _________ of the _______ in which they are located and in which they carry out most of their ___________

Answer 9

currency; country; transactions;

Question 10

• An entity can present its financial statements in any ________ it chooses.
• However, the _________ currency is normally the same as their __________ currency.

Answer 10

currency;
presentation; functional;

Question 11

IAS21 requires that _______ ________ transactions are translated using the exchange rate at the ____ of the __________ (the s___ r___ ) before they are recorded in the financial statements.

An ________ rate may be used if exchange rates do not f________ significantly

Answer 11

foreign currency; date; transaction; spot rate; average; fluctuate;

Question 12

WEx: Initial Recognition (1) and (2), P262 Study Guide

Answer 12

See textbook

Question 13

M_______ items remaining in the s________ of f_______ p_______ at year end are re-translated using the _______ rate

Answer 13

Monetary; statement; financial position; closing;

Question 14

Settlement at period end

• Where there is a foreign currency asset or liability in the statement of financial position at year end, such as an u_____ s______, the balance is re-translated using the ______ exchange rate.

This is done for _________ assets and liabilities.
N__ - m_______ assets and liabilities are ___ re-translated

Answer 14

unpaid supplier; closing;
monetary;
Non-monetary; not;

Question 15

Rules applying at each year-end (1 of 2)
- Report foreign currency _______ ____ (such as r_______ and p_____) using the c_____ r___.
- Report n__ - m________ items (n__ - c______ assets, i________ ) that are carried at h_______ cost in a foreign currency using the exchange rate that was used at the ____ of the t________ (historical rate)

Answer 15

monetary items; receivables; payables; closing rate;
non-monetary; non-current; inventories; historical; date; transaction;

Question 16

Rules applying at each year end (2 of 2)
- Report n__ - m_______ items that are carried at f___ v____ in a foreign currency using the exchange rate that existed when the ______ were d________.

Answer 16

non-monetary; fair value;
values; determined;

Question 17

Exchange differences arising on the re-translation of m_______ items are recognised as part of ______ or ____ for the year

Answer 17

monetary; profit; loss;

Question 18

WEx: Revaluation, P263 Study Guide

Answer 18

See textbook;

Question 19

A holding or parent company with f______ o_________ must ________ the financial statements of those o_______ into its own reporting ________ before they can be consolidated into the group accounts.

Answer 19

foreign operations; translate; operations; currency;

Question 20

Factors in determining functional currency:
- The currency that mainly i_______ ______ prices for _____ and _______
- The currency of the ______ whose c________ forces and r_________ mainly determine the ______ prices of its ______ and ________.
- The currency that mainly i_______ l_____, m_______ and other costs of providing ______ or _______.

Answer 20

influences sales; goods; services;
country; competitive; regulations; sales; goods; services;
influences labour; materials; goods; services;

Question 21

In determining the functional currency, management may also need to consider:
- The currency in which f____ from f_________ a_______ (raising loans and issuing equity) are generated
- The currency in which r_____ from o________ a_______ are usually retained

Answer 21

funds; financing activities;
receipts; operating activities;

Question 22

To determine the functional currency of a foreign operation, it is necessary to consider the r_________ between the foreign operation and its parent:
- If the foreign operation carries out its business as though it were an e______ of the p______ o________, it is likely to have the same f________ c_______ as the p_____.
- If the foreign operation is s___ - a_________ it is likely to have a d_______ f________ c________ from the p______

Answer 22

relationship;
extension; parent’s operations;
functional currency; parent;
semi-autonomous; different functional currency;

Question 23

Same functional currency as the reporting entity

• Any movement in the e______ r____ between the reporting currency and the foreign operation’s currency will have an __________ impact on the reporting entity’s c___ f____ from the foreign operations.
• Ie. changes in the exchange rate affect the i________ m________ i___ held by the foreign operation, not the reporting entity’s net investment in that operation.

Answer 23

exchange rate; immediate; cash flows; individual monetary items;

Question 24

• The foreign operation could keep its accounting records and prepare individual financial statements in the l____ c_______.
• In this situation, the foreign operation’s transactions should be t________ as if they had been those of the ______.

Answer 24

local currency;
translated; parent;

Question 25

Different functional currency from the reporting entity: - A _____ in the e_______ r___ will produce little or no direct effect on the p______ and f______ cash flows from o________ of either the f______ o________ or the r_______ e_____. - Rather, the change in exchange rate affects the reporting entity's n__ i_______ in the f_____ o_______.

Answer 25

change; exchange rate; present; future; operations; foreign operation; reporting entity; net investment; foreign operation;

Question 26

The ________ currency of the parent is the __________ currency of the foreign operation.

Answer 26

functional; presentation;

Question 27

- A_____ and l_______ shown in the foreign operation's SFP are translated at the ______ rate at the reporting date, regardless of the date on which those items o________.

Answer 27

Assets; liabilities; closing; originated;

Question 28

- S_____ c______ and p__ - a_______ r_______ are translated at the _______ rate being the e______ r____ on the date of a_________.

Answer 28

Share capital; pre-acquisition reserves; historic; exchange rate; acquisition;

Question 29

- P__ - a________ r______ are a balancing figure and include the e_______ d_________ on translation.

Answer 29

Post-acquisition reserves; exchange difference;

Question 30

- Amounts in the _________ of ______ or ____ are translated at the rate ruling at the date of the t________ (an a_______ r___ will usually be used for practical purposes)

Answer 30

statement; profit; loss; transaction; average rate;

Question 31

WEx: Different functional currency from the reporting entity, P265 Study Guide

Answer 31

See textbook;

Question 32

If asked to prepare a statement of profit or loss and other comprehensive income, you may need to calculate the amount of exchange difference. It consists of exchange gains or losses arising from: - Translating i_____ or e_______ items at the _______ rate, whereas ______ and _________ are translated at the _______ rate - Translating the o_______ n__ i_______ (opening net assets) in the foreign entity at a _______ rate different from the closing rate at which it was previously reported.

Answer 32

income; expense; average; assets; liabilities; closing; opening net investment; closing;

Question 33

Analysis of exchange differences examples, P267 Study Guide

Answer 33

See textbook;

Question 34

IAS21 requires the following disclosures in respect of foreign currency transactions: - The ______ of e______ d________ recognised in ______ or ____ in the period. - The _______ of e______ d________ recognised as ______ c_________ i_______. - If relevant, the fact that the p________ currency is different from the f________ currency and the reason why.

Answer 34

amount; exchange difference; profit; loss; amount; exchange difference; other comprehensive income; presentation; functional;

Question 35

Exchange differences arising on translation is calculated as the difference between: - O_______ n__ a____ at the _______ rate and o_______ n__ a______ at the _______ rate; plus - R______ p_____ at the _______ rate and r_______ p______ at the _______ rate; It is recognised as o______ c_________ i______ and forms part of ____-__________ reserves in the statement of financial position.

Answer 35

Opening net assets; opening; opening net assets; closing; Retained profits; average; retained profits; closing; other comprehensive income; post-acquisition;

Question 36

Q3 P 270 Study Guide

Answer 36

see textbook;

Question 37

- The assets and liabilities of a foreign subsidiary are always translated at the _______ rate, not _______ rate, where the subsidiary has a different __________ currency from its parent. - For the translation of a foreign subsidiary, there is no consideration of _________ or ___-_________ assets and liabilities, all are translated at the ______ rate.

Answer 37

closing; historic; functional; monetary; non-monetary; closing;

Question 38

Q7 P272 Study Guide

Answer 38

see textbook;

Question 39

Q8 P272 Study Guide

Answer 39

see textbook;

Question 40

Unrealised exchange differences on the r___________ of _________ items in an entity's individual accounts are recognised in ______ or ____

Answer 40

retranslation; monetary; profit; loss;

Question 41

Monetary items do not include c______ a_____ such as i________ and p__________, which are classified as n__-m_________ items

Answer 41

current assets; inventories; prepayments; non-monetary;

Question 42

Non-monetary items denominated in a f______ c________ have to be r_________ before they can be included in the s________ of _______ _________

Answer 42

foreign currency; retranslated; statement; financial position;

Question 43

Q9 P273 Study Guide;

Answer 43

see textbook;

Question 44

IFRS 16 is called?

Answer 44

Leases

Question 45

A lease is a ______ that allows the _______ the right to use an ______ for a period of time

Answer 45

contract; lessee; asset;

Question 46

IFRS 16 ensures all ______ are included on the _______'s statement of financial position as an ______ and with a corresponding _______ even thought the business does not actually own the ______.

Answer 46

leases; lessee; asset; liability; asset;

Question 47

Exemptions to IFRS 16 Leases: - S____ - t___ leases: This is a l_____ for a period of time for less than _ _ months. - L__ v____ l_____ - when the underlying a____ has a low value when new (the order of magnitude of US$______ or less)

Answer 47

Short-term; lease; 12; Low value leases; asset; 5000;

Question 48

At the inception of the lease, the lessee will record an asset and a liabilty: Dr. ______ to ___ _____ Cr. _______ _________

Answer 48

Right; use asset; Lease liability;

Question 49

The amount of a lease will be measured at cost to include: - The p_____ v_____ of the f_____ l_____ p______ including any expected cash flows at the end of the l_____, d_______ at the i_____ r___ implicit in the l______. - Any l_____ p_______ made before the l______ commences. - Any i_____ d______ costs incurred by the l______.

Answer 49

present value; future lease payments; lease; discounted; interest rate; lease; lease payments; lease; initial direct; lessee;

Question 50

The right to use asset should be recognised at the cost model under IAS16 and should be depreciated over the ______ of: - U_____ l____ of the ______ - L_____ _____

Answer 50

lower; Useful life; asset; Lease term;

Question 51

The right to use asset recognition rule is overridden when the l____ t_______ o________ to the l______ at the end of the lease, in which case the right of use asset should be d_________ over the u_____ l____ of the _____. The l____ l______ is increased by any i______ c_____ and reduced by any p_____ made under the l_____.

Answer 51

lease transfers ownership; lessee; depreciated; useful life; asset; lease liability; interest charges; payment; lease;

Question 52

WEx: Accounting for a lease by the lessee - payments in arrears, P275 Study Guide

Answer 52

see textbook;

Question 53

Q17 Accounting for a lease by the lessee P276 Study Guide

Answer 53

see textbook;

Question 54

When an entity elects for a short-term or low-value lease, they must recognise a ______ expense in ______ or _____ on a straight-line basis or other systematic basis.

Answer 54

rental; profit; loss;

Question 55

WEx Low value lease, P276 Study Guide

Answer 55

See textbook;

Question 56

IFRS16 requires lessors to classify each of their leases as either a ________ lease or an ________ lease

Answer 56

finance; operating;

Question 57

Operating lease A lease that does not t______ s_________ all the r____ and r______ incidental to ownership of an u________ a____. Here, the l_____ continues to r______ the a____ and accounts for r_____ i______ received.

Answer 57

transfer substantially; risks; rewards; underlying asset; lessor; recognise; asset; rental income;

Question 58

Finance lease A finance lease is a lease that t______ s_________ all the r____ and r______ incidental to ownership of an u________ a_____. In this case, IFRS 16 requires recognition and measurement criteria to be followed.

Answer 58

transfers substantially; risks; rewards; underlying asset;

Question 59

Finance lease recognition and measurement (1) - At the commencement date where the lessor makes the u______ a_____ available for use to the l______, the l______ derecognises the u______ a______ and recognises a r_________ at an amount equal to the n__ i________ in the lease. - The n__ i_________ in the lease is the sum of: i) P______ v_____ of lease payments r_______ by the l_____ ii) P______ v______ of any unguaranteed r______ v_____ accruing to the l______

Answer 59

underlying asset; lessee; lessor; underlying asset; receivable; net investment; net investment; Present value; received; lessor; Present value; residual value; lessor;

Question 60

Finance lease recognition and measurement (2) - The u___________ r______ v_____ is that portion of the r_______ v______ of the u_______ a______ which is not assured. - Finance income received from the l______ is recognised over the l_____ term based on a pattern reflecting a c_______ p________ rate of _______ on the l______'s net investment in the l______.

Answer 60

unguaranteed residual value; residual value; underlying asset; lessee; lease; constant periodic; return; lessor; lease;

Question 61

The ____ _______ will be calculated by adding on the f______ cost and deducting any l_____ p_______

Answer 61

lease liability; finance; lease payments;

Question 62

QRQ4 Q1, P278 Study Guide;

Answer 62

$12,720

Question 63

QRQ4, Q3 & 4, P278 Study Guide

Answer 63

$250,000; $385,000;

Question 64

QRQ5 P278 Study Guide;

Answer 64

$62,500

Question 65

According to IAS21, a f_____ c______ transaction must be i______ t________ by converting the f______ c______ into the p________ c______ by applying the ____ ________ ____.

Answer 65

foreign currency; initially translated; foreign currency; presentation currency; spot exchange rate;