Deck 11: Translation and Consolidation of Foreign Operations

Question 1

Which of the following statements is correct?

A) If an organization is self-sustaining, monetary items must be translated using closing rates.
B) If an organization is self-sustaining, monetary items must be translated using average rates.
C) If an organization is self-sustaining, shareholders' equity must be translated using closing rates.
D) If an organization is considered an integrated foreign subsidiary non-monetary items recorded at cost must be translated using average rates.

Answer 1

A

Question 2

A) If an organization is self-sustaining, dividends must be translated using closing rates.
B) If an organization is self-sustaining, dividends must be translated using average rates.
C) If an organization is self-sustaining, dividends must be translated using historical rates.
D) If an organization is considered an integrated foreign subsidiary dividends must be translated using average rates.

Answer 2

C

Question 3

The risk exposure resulting from the possible reduction in terms of the domestic reporting foreign currency, of the discounted future cash flows generated from foreign investments or operations due to real changes in exchange rates is referred to as:

A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D) business risk.

Answer 3

C

Question 4

For a self-sustaining foreign operation, exchange gains and losses are to be included in or along with:

A) other comprehensive income.
B) an exchange account.
C) non-Controlling interest.
D) the acquisition differential amortization.

Question 5

According to IAS 29, the term "hyper-inflationary" means:

A) an annual inflation rate of 50%.
B) an annual inflation rate of 100%.
C) a cumulative inflation rate of 100% over a 3-5 year period.
D) it does not establish an absolute rate which is deemed to be hyper-inflation.

Question 6

A) If an organization is self-sustaining, non-monetary items recorded at cost must be translated using historical rates.
B) If an organization is self-sustaining, non-monetary items recorded at cost must be translated using average rates.
C) If an organization is self-sustaining, non-monetary items recorded at cost must be translated using closing rates.
D) If an organization is considered an integrated foreign subsidiary non-monetary items recorded at cost must be translated using closing rates.

Question 7

Which of the following statements is FALSE?

A) If a subsidiary is self-sustaining, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
B) If a subsidiary is an integrated foreign subsidiary, the method of valuation of assets and liabilities is of no consequence in the translation because all of the assets are translated at the closing rate.
C) If a subsidiary is an integrated foreign subsidiary, a write-down to market may be required in the translated financial statements.
D) If a subsidiary is an integrated foreign subsidiary, no write-down is required in the foreign currency financial statements.

Question 8

Under the Current Rate Method, which of the following statements is correct?

A) Transaction exposure is greatest.
B) The relationship of balance sheet items is best preserved.
C) Income statement items are translated using a mix of rates.
D) Income statement items are translated using average rates.

Question 9

The risk exposure that occurs between the time of entering into a transaction and the time of settling it is referred to as:

A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D) business risk.

Question 10

A) If an organization is self-sustaining, non-monetary items recorded at closing values must be translated using closing rates.
B) If an organization is self-sustaining, non-monetary items recorded at closing values must be translated using average rates.
C) If an organization is self-sustaining, non-Monetary items recorded at closing values must be translated using historical rates.
D) If an organization is considered an integrated foreign subsidiary non-monetary items recorded at closing values must be translated using average rates.

Question 11

Which of the following statements is correct?

A) If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and integrated foreign subsidiaries will show a foreign exchange gain.
B) If a foreign currency weakens with respect to the Canadian dollar, both self-sustaining and integrated foreign subsidiaries will show a foreign exchange loss.
C) If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary will show a foreign exchange gain while an integrated foreign subsidiary will show a foreign exchange loss.
D) If a foreign currency weakens with respect to the Canadian dollar, a self-sustaining subsidiary will show a foreign exchange loss while an integrated foreign subsidiary will show a foreign exchange gain.

Question 12

Which of the following statements is correct?

A) If an organization is self-sustaining, capital stock must be translated using closing rates.
B) If an organization is self-sustaining, capital stock must be translated using average rates.
C) If an organization is self-sustaining, capital stock must be translated using historical rates.
D) If an organization is considered an integrated foreign subsidiary capital stock must be translated using average rates.

Question 13

Under the Current Rate Method, which of the following statements is correct?

A) All balance sheet items excluding shareholders equity are translated using the closing rate in effect at the balance sheet date.
B) All balance sheet items are translated using the closing rate in effect at the balance sheet date.
C) All balance sheet items are translated using the average rate in effect throughout the year.
D) Only non-current balance sheet items are translated using the closing rate in effect at the balance sheet date.

Question 14

If the functional currency of the foreign entity is the same as the parent's functional currency, which of the following statements is correct?

A) The foreign entity is classified as integrated.
B) The foreign entity is classified as self-sustaining.
C) The foreign entity is classified as a foreign affiliate.
D) The investment in the foreign entity is classified as a non-monetary asset.

Question 15

Which of the following statements is correct?

A) If an organization is self-sustaining, depreciation and amortization must be translated using closing rates.
B) If an organization is self-sustaining, depreciation and amortization must be translated using average rates.
C) If an organization is self-sustaining, depreciation and amortization must be translated using historical rates.
D) If an organization is considered an integrated foreign subsidiary depreciation and amortization must be translated using closing rates.

Question 16

The risk exposure resulting from the translation of foreign-currency-denominated financial risks is referred to as:

A) translation (accounting) exposure.
B) transaction exposure.
C) economic exposure.
D) business risk.

Question 17

Under the Temporal Method, which of the following statements is correct?

A) The relationship of balance sheet items is best preserved.
B) A single historic rate is used to translate all income statement items.
C) A net asset exposure is most likely.
D) Historic rates are used to translate most non-monetary items.