Question 1

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 standard is silent on this translation.

Accepted Answer

The standard does not specify a particular rate for translating distributions from retained profits, leaving it to interpretation or the application of general principles.

Question 2

IAS 21 prescribes alternative methods for the translation of the financial statements of foreign operations.It depends upon whether these operations are integrated or self-sustaining.

Accepted Answer

IAS 21 does not prescribe different methods based on whether operations are integrated or self-sustaining; it focuses on the functional currency and the translation of foreign currency transactions and financial statements.

Question 3

The exchange rate used for the translation of the payment of dividends is the spot rate at the date when the retained earnings or reserves,from which the dividends were drawn,were created.

Accepted Answer

The exchange rate used for the translation of the payment of dividends is the spot rate at the date of payment, not the date when the retained earnings or reserves were created.

Question 4

When consolidating financial statements of foreign operations,we use the same rate each year for goodwill,so that the amount recognised on consolidation will not fluctuate from year to year.

Accepted Answer

This statement is true. When consolidating financial statements of foreign operations, a consistent rate is used for goodwill to avoid fluctuations in the amount recognized on consolidation from year to year. This is because goodwill is not a tangible asset that can be revalued based on market rates, and changes in exchange rates can greatly impact its value. Hence, a consistent rate is used for consolidation to ensure that the reported financials are comparable across different periods.

Question 5

Under the translation method required by IAS 21,the approach to translating a foreign operation's financial statements 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 average rate for the period 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.

Accepted Answer

According to IAS 21, revenue and expense items are usually translated using the average exchange rate for the period. This is appropriate if the exchange rates have fluctuated significantly during the reporting period, and the revenues and expenses are evenly distributed over the period. Translating non-monetary assets at the spot exchange rate at the date of the purchase transaction (option B) is not correct, as the date of the transaction could be different from the reporting period. Translating proposed distributions from retained profits at the exchange rate current when the distributions are completed in cash (option D) is also not correct, as they do not have an impact on the translation of the financial statements. Translating post-acquisition changes in equity at the exchange rate current at the date of the change (option A) is correct, but it is not the only approach to translating a foreign operation's financial statements.

Question 6

When translating foreign subsidiary financial statements,net assets are translated at the ---- rate and the components of net assets are translated at the -----rate.
A)(a) current; (b) spot
B)(a) historical; (b) current
C)(a) current; (b) historical
D)(a) spot; (b) current

Accepted Answer

When translating foreign subsidiary financial statements, net assets are translated at the current exchange rate, while components of net assets (such as inventory or property, plant, and equipment) are translated at the historical exchange rate. Therefore, choice (a) is incorrect as net assets are not translated at the spot rate. Choice (b) is also incorrect as historical rate is only used for components of net assets, not net assets as a whole. Therefore, the best choice is (c).

Question 7

If the exchange rate for US dollars relative to Euros goes from $1 = €2.10 to $1 = €2.20,the Euro has strengthened.

Accepted Answer

When the exchange rate changes from $1 = €2.10 to $1 = €2.20, it means that more Euros are needed to buy one US dollar, indicating that the Euro has weakened relative to the US dollar.

Question 8

As prescribed in IAS 21,in translating the accounts of a foreign operation from local currency to functional currency,the exchange rate to use for land is the exchange rate at the date of the transaction.

Accepted Answer

According to IAS 21, the exchange rate to use for land is the exchange rate at the date of the transaction when translating the accounts of a foreign operation from the local currency to the functional currency.

Question 9

The foreign exchange exposure of the parent entity in relation to its foreign operation relates to the net cash flows of the investment in the operation.

Accepted Answer

The answer of The foreign exchange exposure of the parent...

Question 10

Under the translation method required by IAS 21,the approach to translating a foreign operation's accounts includes:
A)Non-monetary items included in the statement of financial position 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 statement of financial position.
D)all of the given answers.

Accepted Answer

All of the given answers are correct. According to the translation method required by IAS 21, non-monetary items included in the statement of financial position are translated at the rate current at reporting date, equity at the date of investment is translated at the rate for when the investment was acquired, and revenue and expense items are translated at the exchange rates current at the applicable transaction dates statement of financial position. Therefore, choice D is the best answer.

Question 11

Exchange differences resulting from the translation of foreign operations to presentation currency are shown:
A)in the 'retained earnings' section of equity.
B)in the 'general reserve' section of equity.
C)in the 'asset revaluation reserve' section of equity.
D)none of the given answers.

Accepted Answer

Exchange differences resulting from the translation of foreign operations to presentation currency are typically recognized in other comprehensive income and accumulated in a separate component of equity, often referred to as the "foreign currency translation reserve" or similar, which is not explicitly listed among the given options.

Question 12

IAS 21 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)none of the given answers.

Accepted Answer

IAS 21 does not specify the use of any of the given rates for translating post-acquisition movements in equity other than retained profits or accumulated losses. Instead, it requires the use of the exchange rate at the date of the transaction for equity items.

Question 13

As prescribed in IAS 21,translation of the financial statements of foreign operations to the presentation currency requires any gains or losses on translation be taken directly to reserves.

Accepted Answer

This is stated in IAS 21, paragraph 32.

Question 14

Aus Co Ltd has a foreign operation based in Japan.The following information was extracted from the foreign operation's financial statements for the period ended 30 June 2015: $$\begin{array} { | l | r | } 
\hline & ¥ 000 \
\hline \text { Machinery (at cost purchased 1 July 2013) } & 85000 \
\hline \text { Inventory on hand (purchased last quarter 2015) } & 16000 \
\hline \text { Depreciation expense-machinery } & 8200 \
\hline \text { Land (purchased 1 July 2013, revalued 1 June 2015) } & 150000 \
\hline
\end{array}$$ Exchange rate information is: $$\begin{array} { | l | r | } 
\hline 1 \text { July } 2013 & ¥ 1.00 = A S 0.0136 \
\hline \text { Average for year ended } 30 \text { June } 2015 & ¥ 1.00 = A \$ 0.0153 \
\hline 1 \text { June } 2015 & ¥ 1.00 = A S 0.0146 \
\hline \text { Last quarter } 2015 & ¥ 1.00 = A \$ 0.0150 \
\hline 30 \text { June } 2015 & ¥ 1.00 = A \$ 0.0165 \
\hline
\end{array}$$ What is the amount at which each item would be translated (rounded to the nearest A$)?
A) $$\begin{array} { | l | r | } 
\hline &  { \text { A\$ } } \
\hline \text { Machinery } & 1402500 \
\hline \text { Inventory on hand } & 264000 \
\hline \text { Depreciation expense-machinery } & 125460 \
\hline \text { Land } & 2475000 \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | } 
\hline & \text { A\$ } \
\hline \text { Machinery } & 1156000 \
\hline \text { Inventory on hand } & 240000 \
\hline \text { Depreciation expense-machinery } & 111520 \
\hline \text { Land } & 2190000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | } 
\hline &  { \text { A\$} } \
\hline \text { Machinery } & 1402000 \
\hline \text { Inventory on hand } & 233600 \
\hline \text { Depreciation expense-machinery } & 111520 \
\hline \text { Land } & 2040000 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | } 
\hline &  { \text { AS } } \
\hline \text { Machinery } & 1156000 \
\hline \text { Inventory on hand } & 264000 \
\hline \text { Depreciation expense-machinery } & 135300 \
\hline \text { Land } & 2040000\
\hline
\end{array}$$

Accepted Answer

Machinery is translated at the rate at the date of acquisition (1 July 2013) of ¥1 = A$0.0136. Inventory is translated at the rate at the date of acquisition (last quarter 2015) of ¥1 = A$0.0150. Depreciation expense is translated at the average rate for the year ended 30 June 2015 of ¥1 = A$0.0153. Land is translated at the rate at the date of revaluation (1 June 2015) of ¥1 = A$0.0146.

Question 15

As prescribed in IAS 21,in translating the financial statements of a foreign operation from functional to presentation currency,the exchange rate to use for inventory is the average rate during the period the inventory was purchased.

Accepted Answer

IAS 21 requires the use of the exchange rate at the date of the transaction for translating non-monetary items like inventory, not the average rate.

Question 16

Exchange differences arising from translation to the presentation currency are not recognised in profit or loss because the changes in exchange rates have little or no direct effect on the present and future cash flows from operations.

Accepted Answer

This statement is correct. Exchange differences arising from translation to the presentation currency are recognized in other comprehensive income (OCI) and are not recognized in profit or loss because they do not have a direct impact on the cash flows from operations. These differences are only recognized in profit or loss when the foreign operation is sold, liquidated or disposed of.

Question 17

When translating the financial statements of a foreign operation to presentation currency,IAS 21 requires any gain or loss on translation of the financial statements to be:
A)recognised as a revenue or expense in the statement of comprehensive income.
B)transferred to a reserve in the equity section of the statement of financial position.
C)deferred and amortised over a period not greater than 20 years.
D)written off against the non-monetary assets of the foreign operation with any balance remaining recognised as a revenue or expense in the period.

Accepted Answer

IAS 21 requires that any gain or loss on translation of the financial statements of a foreign operation be recognized in other comprehensive income and accumulated in a separate component of equity, typically referred to as a foreign currency translation reserve.

Question 18

The amount of a foreign operation's post-acquisition retained earnings as translated into functional currency will depend on the amount translated from the statement of comprehensive income.

Accepted Answer

The post-acquisition retained earnings of a foreign operation will be translated into the functional currency using the exchange rate at the balance sheet date. The amount translated will depend on the balance of retained earnings in the statement of comprehensive income of the foreign operation. Therefore, the statement in the question is true.

Question 19

If the assets of a foreign operation exceed its liabilities,and the value of the functional currency (for example the Euro)falls relative to the currency of the foreign operations,there will be:
A)a credit to the 'foreign currency translation reserve' in the consolidated financial statements.
B)a debit to the 'foreign currency translation reserve' in the consolidated financial statements.
C)a credit to 'foreign currency translation revenue' in the consolidated financial statements.
D)a debit to the 'foreign currency translation expense' in the consolidated financial statements.

Accepted Answer

When assets exceed liabilities and the functional currency falls relative to the currency of the foreign operation, there is a gain in the value of the foreign currency. This gain will be recorded as a credit to the 'foreign currency translation reserve' in the consolidated financial statements.

Question 20

Under the translation method required by IAS 21,the approach to translating a foreign operation's financial statements includes:
A)translating monetary items at the closing rate of exchange .
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.

Accepted Answer

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

Quiz 25: Translating the Financial Statements of Foreign Operations

Distributions from retained profits are translated at:

IAS 21 prescribes alternative methods for the translation of the financial statements of foreign operations.It depends upon whether these operations are integrated or self-sustaining.

The exchange rate used for the translation of the payment of dividends is the spot rate at the date when the retained earnings or reserves,from which the dividends were drawn,were created.

When consolidating financial statements of foreign operations,we use the same rate each year for goodwill,so that the amount recognised on consolidation will not fluctuate from year to year.

Under the translation method required by IAS 21,the approach to translating a foreign operation's financial statements includes:

When translating foreign subsidiary financial statements,net assets are translated at the ---- rate and the components of net assets are translated at the -----rate.

If the exchange rate for US dollars relative to Euros goes from $1 = €2.10 to $1 = €2.20,the Euro has strengthened.

As prescribed in IAS 21,in translating the accounts of a foreign operation from local currency to functional currency,the exchange rate to use for land is the exchange rate at the date of the transaction.

The foreign exchange exposure of the parent entity in relation to its foreign operation relates to the net cash flows of the investment in the operation.

Under the translation method required by IAS 21,the approach to translating a foreign operation's accounts includes:

Exchange differences resulting from the translation of foreign operations to presentation currency are shown:

IAS 21 specifies that post-acquisition movements in equity other than retained profits or accumulated losses are translated at:

As prescribed in IAS 21,translation of the financial statements of foreign operations to the presentation currency requires any gains or losses on translation be taken directly to reserves.

As prescribed in IAS 21,in translating the financial statements of a foreign operation from functional to presentation currency,the exchange rate to use for inventory is the average rate during the period the inventory was purchased.

Exchange differences arising from translation to the presentation currency are not recognised in profit or loss because the changes in exchange rates have little or no direct effect on the present and future cash flows from operations.

When translating the financial statements of a foreign operation to presentation currency,IAS 21 requires any gain or loss on translation of the financial statements to be:

The amount of a foreign operation's post-acquisition retained earnings as translated into functional currency will depend on the amount translated from the statement of comprehensive income.

If the assets of a foreign operation exceed its liabilities,and the value of the functional currency (for example the Euro) falls relative to the currency of the foreign operations,there will be:

Under the translation method required by IAS 21,the approach to translating a foreign operation's financial statements includes: