Question 1

As prescribed in AASB 121, when re-measuring financial statements of foreign operations to presentation currency, which of the following identifies all items to be re-measured at historic rates?
A) Cash, accounts receivable and accounts payable;
B) Inventory, goodwill, property plant and equipment;
C) Accounts payable, unearned revenue and note payable;
D) Gain on sale of non-current assets, dividend revenue and dividends paid;
E) None of the given answers.

Accepted Answer

The answer of As prescribed in AASB 121, when re-measuring...

Question 2

Ramikin Co is a fully owned subsidiary of Bobbin Ltd, an Australian company. Bobbin Ltd purchased all the issued capital of Ramikin Ltd on 1 July 2004. Ramikin Ltd is based in Canada. The following information is summarised from the foreign currency accounts of Ramikin Ltd for the period ended 30 June 2005.

Additional information:
All revenues and expenses were earned or incurred evenly throughout the year.
Inventory was purchased evenly over the period, with the inventory on hand at the end of the period purchased over the quarter ending on 30 June and trade creditors were accrued evenly over the period.
Exchange rate information:

Based on the information provided. What is the gain (loss) on foreign currency translation for Ramikin Ltd for the period?
A) Gain $A385
B) Loss $A28
C) Loss $A612
D) Gain $A376
E) None of the given answers.

Accepted Answer

To calculate the gain or loss on foreign currency translation, we need to first convert the financial statements from CAD to AUD using the average exchange rate for the year. 
Total assets at 30 June 2005: CAD 1,500,000 × 0.9181 = AUD 1,377,150 
Total liabilities at 30 June 2005: CAD 900,000 × 0.9181 = AUD 826,290 
Equity at 1 July 2004: CAD 500,000 × 0.8524 = AUD 426,200 
Equity at 30 June 2005: (CAD 1,500,000 – CAD 900,000 + CAD 350,000) × 0.9181 = AUD 900,766 
Translation gain/loss = Ending equity – Beginning equity – Additional investments + Dividends 
Translation loss = AUD 900,766 – AUD 426,200 – 0 + 0 = AUD 474,566 converted to a loss of approximately $612 based on the given exchange rate of AUD/CAD 0.7737.

Question 3

Yarra Manufacturing Ltd is an Australian registered entity that has a branch in Singapore, Kew Ltd. Kew Ltd has a foreign operation in China. The foreign operation maintains its accounting records in Chinese Yuan. The functional currency of the Chinese operation is Singapore dollar. The presentation currency of Kew Ltd is Australian dollar.
At reporting date, the translation of the financial statements of the Chinese foreign operation resulted to a loss of S$6 500 and the translation of the financial statements of Kew Ltd to its presentation currency resulted to a gain of A$4 500.
Which of the following results is consistent with AASB 121 with respect to Yarra Manufacturing Ltd?
A) Loss of S$6 500 should be recognised in profit and loss.
B) Loss of S$6 500 should be recognised in comprehensive income.
C) Gain of A$4 500 should be recognised in profit and loss.
D) Gain of A$4 500 should be recognised in comprehensive income.
E) None of the given answers.

Accepted Answer

The answer of Yarra Manufacturing Ltd is an Australian registered...

Question 4

The following is an extract from the 'Notes to the Accounts' explaining the foreign currency translation reserve.

What are the rates represented by (a) and (b)?
A) (a) Current; (b) Spot.
B) (a) Historical; (b) Current.
C) (a) Current; (b) Historical.
D) (a) Spot; (b) Current.
E) (a) Forward; (b) Historical.

Accepted Answer

The current rate is used to translate current assets and liabilities, while the historical rate is used to translate non-current assets and liabilities. Therefore, (a) represents the current rate and (b) represents the historical rate.

Question 5

The net assets of a foreign operation at 30 June 2005 are constituted as assets of US$400,000 and liabilities of US$250,000. The parent entity purchased the foreign subsidiary on 1 July 2002. Exchange rate information is as follows:

The foreign operation has not traded during the year ended 30 June 2005, so the net assets remained unchanged during the period. What is the parent entity's foreign currency exposure for the year ended 30 June 2005?
A) Foreign exchange gain $A197,185.
B) Foreign exchange gain $A20,610.
C) Foreign exchange gain $A342,310.
D) Foreign exchange loss $A6,002.
E) None of the given answers.

Accepted Answer

To determine the foreign currency exposure, we need to compare the net assets of the foreign operation at the beginning and end of the year, translated into the parent entity's functional currency (Australian dollars).

At 1 July 2004:
Net assets of foreign operation = US$400,000 - US$250,000 = US$150,000
Exchange rate = US$1 = A$1.37
Net assets in AUD = US$150,000 x A$1.37 = A$205,500

At 30 June 2005:
Net assets of foreign operation = US$400,000 - US$250,000 = US$150,000
Exchange rate = US$1 = A$1.28
Net assets in AUD = US$150,000 x A$1.28 = A$192,000

Therefore, the parent entity's foreign currency exposure is:
Foreign exchange gain = A$192,000 - A$205,500 = -$13,500 or -$9,930 (rounded to nearest dollar)

Since the question asks for a foreign exchange gain, we need to reverse the sign and choose the only answer that corresponds to a gain: 
Foreign exchange gain $A20,610 (Option B)

Question 6

As prescribed in AASB 121, when re-measuring financial statements of foreign operations to functional currency, which of the following identifies all items to be re-measured at historic rates?
A) Cash, inventory and accounts receivable;
B) Payables, long-term loan and unearned revenue;
C) Inventory, goodwill, property plant and equipment;
D) Accounts receivable, accounts payable and accrued expenses;
E) None of the given answers

Accepted Answer

According to AASB 121, items that should be re-measured at historic rates are those that are measured at cost in the functional currency, such as inventory, goodwill, property plant and equipment. Therefore, option C is the only one that identifies all items that should be re-measured at historic rates.

Question 7

In the process of consolidating the translated financial accounts of a foreign operation, the elimination entry to record goodwill will be affected by the translation process in what way?
A) The elimination of the investment against the pre-acquisition capital and reserves and the calculation of goodwill will vary each year depending on the exchange rates at the end of the period that are used to calculate the foreign exchange gain or loss.
B) The elimination of the investment against the pre-acquisition capital and reserves and the calculation of goodwill will be the same unless inter-company transactions have to be eliminated, in which case the entry will have to be adjusted for the exchange rate differences on the inter-company transactions.
C) The elimination of the investment against the pre-acquisition capital and reserves and the calculation of goodwill will be the same each year the elimination entry is made.
D) The elimination of the investment against the pre-acquisition capital and reserves and the calculation of goodwill will be affected by any subsequent transfers between equity items that may arise as a result of bonus issues or transfers between reserves.
E) None of the given answers.

Accepted Answer

The answer of In the process of consolidating the translated...

Question 8

Aus Co Ltd has a foreign operation based in New Zealand. The following information was extracted from the foreign operation's accounts for the period ended 30 June 2005:

Exchange rate information is:

What is the amount at which each item will be translated (rounded to the nearest $A)?
A) 
B) 
C) 
D) 
E) None of the given answers.

Accepted Answer

The answer of Aus Co Ltd has a foreign operation...

Question 9

Under the translation method required by AASB 121, the approach to translating a foreign operation's accounts includes:
A) Translating monetary items at the rate of exchange current on the transaction date.
B) Translating non-monetary assets at the average exchange rate since the date of purchase of the asset.
C) Translating transfers of post-acquisition equity items within the equity category at the rate of exchange current at the date the original equity item was first included in equity.
D) Translating revenues and expenses at the average rate of exchange applied to equity items.
E) All of the given answers.

Accepted Answer

According to AASB 121, transfers of post-acquisition equity items within the equity category should be translated at the rate of exchange current at the date the original equity item was first included in equity. The other options listed are not accurate approaches to translation under AASB 121.

Question 10

If the assets of a foreign operation exceed its liabilities, and the value of the Australian dollar falls relative to the currency of the foreign operations, there will be:
A) A credit to the 'Foreign Currency Translation Reserve' in the consolidated accounts.
B) A debit to the 'Foreign Currency Translation Reserve' in the consolidated accounts.
C) A credit to 'Foreign Currency Translation Revenue in the consolidated accounts.
D) A debit to the 'Foreign Currency Translation Expense in the consolidated accounts.
E) No impact on the consolidated accounts

Accepted Answer

If the assets of a foreign operation exceed its liabilities and the value of the Australian dollar falls relative to the currency of the foreign operation, it means that the foreign operation's assets will be worth more in Australian dollars when translated. Therefore, there will be a credit to the 'Foreign Currency Translation Reserve' in the consolidated accounts, which records the cumulative impact of foreign currency translation adjustments.

Question 11

AASB 121 specifies that post-acquisition movements in equity other than retained profits or accumulated losses are translated at
A) The 'spot rate'.
B) The 'forward rate'.
C) The 'market rate'.
D) The 'closing rate'.
E) None of the given answers

Accepted Answer

The answer of AASB 121 specifies that post-acquisition movements in...

Question 12

Distributions from retained profits are translated at
A) The 'spot rate'.
B) The rates current at the reporting date.
C) The rates current at the dates when the retained profits were created.
D) The rates current at the dates when the distributions were first proposed.
E) The rates current at the dates when the distributions were made.

Accepted Answer

The answer of Distributions from retained profits are translated at
A)...

Question 13

On 1 July 2003 Land Ltd acquired all of the issued shares of Fall Co, a company based in the US. The financial statements for Fall Co for the year ended 30 June 2005 are provided below. Exchange rate information is:

Additional information:
All revenues and expenses were earned or incurred evenly throughout the year.
All plant and equipment was purchased using a long-term loan when the exchange rate was $A1.00 = US$0.54.
Inventory was purchased evenly over the period, with the inventory on hand at the end of the period purchased over the quarter ending on 30 June, and accounts payable were accrued evenly over the period.
What are the translated amounts for operating profit, retained profit at 30 June 2005, total equity and liabilities and the gain or loss on foreign currency translation for Fall Co (rounded to the nearest $A)?
A) 
B) 
C) 
D) 
E) None of the given answers.

Accepted Answer

The answer of On 1 July 2003 Land Ltd acquired...

Question 14

Emu Co Ltd purchased a foreign operation based in Singapore on 1 July 2002. The following information was extracted from the foreign operation's accounts for the period ended 30 June 2004:

Exchange rate information is:

What is the amount at which each item will be translated (rounded to the nearest $A)?
A) 
B) 
C) 
D) 
E) None of the given answers.

Accepted Answer

Each item should be translated at the exchange rate on the date of the transaction, except for the non-monetary assets which should be translated at their historical cost (which is the purchase price in this case). Using these rules, Option B provides the correct translations for all items.

Question 15

In the process of consolidating the translated financial accounts of a foreign operation, what will be the form of the journal entry required to eliminate the foreign currency effect of a purchase of inventory by the subsidiary from the parent entity? Assume that the value of the foreign currency of the foreign operation has increased relative to the reporting currency.
A) 
B) 
C) 
D) 
E) None of the given answers.

Accepted Answer

The answer of In the process of consolidating the translated...

Question 16

Under the translation method required by AASB 121, the approach to translating a foreign operation's accounts includes:
A) Translating post-acquisition changes in equity at the exchange rate current at the date of the change.
B) Translating non-monetary assets at the spot exchange rate at the date of the purchase transaction.
C) Translating revenue and expense items at the exchange rate current at reporting date where the revenues and expense transactions have been evenly distributed over the period.
D) Translating proposed distributions from retained profits at the exchange rate current when the distributions are completed in cash.
E) All of the given answers.

Accepted Answer

The answer of Under the translation method required by AASB...

Question 17

Aus Co Ltd has a foreign operation based in Japan. The following information was extracted from the foreign operation's accounts for the period ended 30 June 2005:

Exchange rate information is:

What is the amount at which each item would be translated (rounded to the nearest $A)?
A) 
B) 
C) 
D) 
E) None of the given answers.

Accepted Answer

The answer of Aus Co Ltd has a foreign operation...

Question 18

In the process of consolidating the translated financial accounts of a foreign operation, the calculation of minority interests will be affected by the translation process in what way?
A) The minority interests will be allocated a portion of the gain or loss on translation from the income statement.
B) The effect of transactions between the subsidiary and the minority interests will be eliminated after calculating the unrealised foreign exchange gain or loss implicit in the unrealised profit on the inter-company transaction.
C) The minority interests will be allocated a portion of the foreign currency translation reserve.
D) The minority interests calculation is not affected.
E) None of the given answers.

Accepted Answer

The answer of In the process of consolidating the translated...

Question 19

Under the translation method required by AASB 121, the approach to translating a foreign operation's accounts includes:
A) Non-monetary items included in the balance sheet are translated at the rate current at reporting date.
B) Equity at the date of investment is translated at the rate for the when the investment was acquired.
C) Revenue and expense items are translated at the exchange rates current at the applicable transaction dates.
D) Monetary items included in the balance sheet are translated at the exchange rate current at the reporting date.
E) All of the given answers.

Accepted Answer

Under AASB 121, all of the given answers are correct. Non-monetary items are translated at the reporting date's exchange rate, equity is translated at the acquisition date's exchange rate, and revenue and expense items are translated at the transaction date's exchange rate. Monetary items are translated at the reporting date's exchange rate as well.

Question 20

Yarra Manufacturing Ltd is an Australian registered entity that has a branch in Singapore, Kew Ltd. The Singapore branch has a foreign operation in China. The foreign operation maintains its accounting records in Chinese Yuan. The functional currency of the Chinese operation is Singapore dollar. The presentation currency of Kew Ltd is Australian dollar.
At reporting date, the translation of the financial statements of the Chinese foreign operation resulted to a loss of S$6 500 and the translation of the financial statements of Kew Ltd to its presentation currency resulted to a gain of A$4 500.
Which of the following results is consistent with AASB 121 with respect to Kew Ltd?
A) Loss of S$6 500 should be recognised in profit and loss.
B) Loss of S$6 500 should be recognised in comprehensive income.
C) Gain of A$4 500 should be recognised in profit and loss.
D) Gain of A$4 500 should be recognised in comprehensive income.
E) None of the given answers.

Accepted Answer

The answer of Yarra Manufacturing Ltd is an Australian registered...

Quiz 36: Translation of the Accounts of Foreign Operations

As prescribed in AASB 121, when re-measuring financial statements of foreign operations to presentation currency, which of the following identifies all items to be re-measured at historic rates?

The following is an extract from the 'Notes to the Accounts' explaining the foreign currency translation reserve. What are the rates represented by (a) and (b) ?

As prescribed in AASB 121, when re-measuring financial statements of foreign operations to functional currency, which of the following identifies all items to be re-measured at historic rates?

In the process of consolidating the translated financial accounts of a foreign operation, the elimination entry to record goodwill will be affected by the translation process in what way?

Aus Co Ltd has a foreign operation based in New Zealand. The following information was extracted from the foreign operation's accounts for the period ended 30 June 2005: Exchange rate information is: What is the amount at which each item will be translated (rounded to the nearest $A) ?

Under the translation method required by AASB 121, the approach to translating a foreign operation's accounts includes:

If the assets of a foreign operation exceed its liabilities, and the value of the Australian dollar falls relative to the currency of the foreign operations, there will be:

AASB 121 specifies that post-acquisition movements in equity other than retained profits or accumulated losses are translated at

Distributions from retained profits are translated at

Under the translation method required by AASB 121, the approach to translating a foreign operation's accounts includes:

Aus Co Ltd has a foreign operation based in Japan. The following information was extracted from the foreign operation's accounts for the period ended 30 June 2005: Exchange rate information is: What is the amount at which each item would be translated (rounded to the nearest $A) ?

In the process of consolidating the translated financial accounts of a foreign operation, the calculation of minority interests will be affected by the translation process in what way?

Under the translation method required by AASB 121, the approach to translating a foreign operation's accounts includes: