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.

Accepted Answer

In a self-sustaining foreign operation, monetary items are translated using the closing rate at the balance sheet date.

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.

Accepted Answer

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.

Accepted Answer

The economic exposure is 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. The translation exposure is the impact of exchange rate changes on financial statements when they are translated into another currency. The transaction exposure is the risk exposure resulting from the possible reduction in the domestic currency value of foreign currency-denominated transactions. Business risk refers to the risk exposure resulting from factors that are inherent in a company's operations, such as competition or changing markets.

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.

Accepted Answer

Exchange gains and losses for a self-sustaining foreign operation are included in other comprehensive income, as they are considered part of the translation adjustments.

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.

Accepted Answer

IAS 29 does not specify an absolute rate for hyper-inflation but provides characteristics to identify it, such as a cumulative inflation rate approaching or exceeding 100% over three years.

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.

Accepted Answer

The answer of 
A) If an organization is self-sustaining, non-monetary...

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.

Accepted Answer

The statement that "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" is false. In an integrated foreign subsidiary, the method of valuation of assets and liabilities can have an impact on the translation because some assets and liabilities may need to be translated at historical rates or other rates.

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.

Accepted Answer

The Current Rate Method translates all balance sheet items at the current exchange rate, preserving the relationship between them.

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.

Accepted Answer

The risk exposure between entering into a transaction and settling it is known as transaction exposure. This refers to the potential risks that arise from fluctuations in currency exchange rates that may affect the final amount paid/received in a transaction.

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.

Accepted Answer

The answer of 
A) If an organization is self-sustaining, non-monetary...

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.

Accepted Answer

The answer of Which of the following statements is correct?
A)...

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.

Accepted Answer

For a self-sustaining foreign operation, capital stock is translated using historical rates, as it reflects the rate at the time the capital was invested.

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.

Accepted Answer

Under the Current Rate Method, all balance sheet items except for shareholders' equity are translated using the closing rate 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.

Accepted Answer

The answer of If the functional currency of the foreign...

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.

Accepted Answer

The answer of Which of the following statements is correct?
A)...

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.

Accepted Answer

Translation exposure results from the translation of foreign-currency-denominated financial statements into the reporting currency. This exposure represents the risk of gain or loss from changes in exchange rates. Transaction exposure relates to the risk of gain or loss on a specific transaction due to changes in exchange rates. Economic exposure is the risk of gain or loss from the impacts of currency fluctuations on a company's overall competitiveness and market position. Business risk is a general term used to describe the risks associated with a company's operations and not specifically related to foreign currency translation.

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.

Accepted Answer

Under the Temporal Method, historical rates are used to translate most non-monetary items, such as inventory and fixed assets.

Quiz 11: Translation and Consolidation of Foreign Operations

Which of the following statements is correct?

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:

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

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

Which of the following statements is FALSE?

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

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

Which of the following statements is correct?

Which of the following statements is correct?

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

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

Which of the following statements is correct?

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

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