Question 1

As prescribed in IAS 21,when remeasuring financial statements of foreign operations to functional currency,which of the following identifies all items to be re-measured at historic rates?

Accepted Answer

According to IAS 21, items such as inventory, goodwill, and property plant and equipment are to be re-measured at historic rates when remeasuring financial statements of foreign operations to functional currency.

Question 2

In the process of consolidating the translated financial statements 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.

Accepted Answer

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

Question 3

Yarra Manufacturing Plc is a British registered entity that has a branch in Singapore,Kew Plc.Kew Plc 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 Plc is British pound. At reporting date,the translation of the financial statements of the Chinese foreign operation resulted in a loss of S$6500 and the translation of the financial statements of Kew Plc to its presentation currency resulted to a gain of £4500.
Which of the following results is consistent with IAS 21 with respect to Yarra Manufacturing Plc?

Accepted Answer

The answer of Yarra Manufacturing Plc is a British registered...

Question 4

Yarra Manufacturing Plc is a British registered entity that has a branch in Singapore,Kew Plc.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 Plc is British pound. At reporting date,the translation of the financial statements of the Chinese foreign operation resulted in a loss of S$6500 and the translation of the financial statements of Kew Plc to its presentation currency resulted to a gain of £4500.
Which of the following results is consistent with IAS 21 with respect to Kew Plc?

Accepted Answer

According to IAS 21, any gains or losses arising from the translation of financial statements of a foreign operation should be recognized in profit and loss. Therefore, the loss of S$6500 should be recognized in profit and loss. The gain of £4500, on the other hand, should also be recognized in profit and loss as it is a result of translating the financial statements of Kew Plc to its presentation currency. Option B and D are incorrect as both gains and losses should be recognized in profit and loss, not comprehensive income. Option C is incorrect as it refers to a gain that is specific to Kew Plc and not related to the translation of the financial statements of the foreign operation.

Question 5

When a parent entity has an overseas subsidiary the first task before consolidation is to:

Accepted Answer

Before consolidation, the first task is to determine the functional currency of the overseas subsidiary. This is because financial statements of the subsidiary need to be translated from their functional currency to the parent entity's presentation currency. Once the functional currency is determined, the financial statements can be translated and consolidated with the parent entity's financial statements.

Question 6

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

Accepted Answer

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

Question 7

Explain at what exchange rate income and expenses of a foreign operation are generally translated,and the exception that exists to the 'general rule'.

Accepted Answer

The answer of Explain at what exchange rate income and...

Question 8

When translating non-monetary liabilities into the functional currency,the translation rate used is:

Accepted Answer

The answer of When translating non-monetary liabilities into the functional...

Question 9

Outline the approach to be taken when translating the accounts of a foreign subsidiary; that is,the various rates to be used for the various components of the financial statements.

Accepted Answer

The answer of Outline the approach to be taken when...

Question 10

As prescribed in IAS 21,when re-measuring financial statements of foreign operations to presentation currency,which of the following identifies all items to be remeasured at historic rates?

Accepted Answer

The answer of As prescribed in IAS 21,when re-measuring financial...

Question 11

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

Accepted Answer

The minority interests will be allocated a portion of the foreign currency translation reserve. This reserve represents the accumulated gains or losses arising from the translation of the financial statements of the foreign operation into the reporting currency of the parent company. The minority interests, which represent the non-controlling ownership in the foreign operation, are entitled to a proportionate share of this reserve. This allocation is made to reflect the economic ownership of the subsidiary's assets and liabilities, as well as the gains or losses resulting from foreign currency fluctuations. Option A is incorrect because the gain or loss on translation is allocated to the consolidated comprehensive income statement, not to minority interests specifically. Option B is incorrect because the effect of intercompany transactions is eliminated before calculating the minority interests, not after. Option D is incorrect because the calculation of minority interests is directly affected by the translation process.

Question 12

Aus Co Ltd has a foreign operation based in New Zealand.The following information was extracted from the foreign operation's financial statements for the period ended 30 June 2015: $$\begin{array} { | l | r | } 
\hline & \text { \$NZ 000 } \
\hline \text { Machinery (purchased 1 July 2013, revalued 1 June 2015) } & 13000 \
\hline \text { Inventory on hand (purchased last quarter 2015) } & 9800 \
\hline \text { Depreciation expense-machinery } & 700 \
\hline \text { Land (purchased 1 July 2013) } & 75000 \
\hline
\end{array}$$ Exchange rate information is: $$\begin{array} { | l | l | } 
\hline 1 \text { July } 2013 & \text { A\$1.00 } = \$ N Z 1.1255 \
\hline \text { Average for year ended } 30 \text { June } 2015 & \text { A\$1.00 } = \$ N Z 1.2135 \
\hline 1 \text { June } 2015 & \text { AS1.00 } = \$ N Z 1.1024 \
\hline \text { Last quarter } 2015 & \text { A\$1.00 } = \$ N Z 1.2503 \
\hline 30 \text { June } 2015 & \text { AS1.00 } = \$ N Z 1.3250 \
\hline
\end{array}$$ What is the amount at which each item will be translated (rounded to the nearest A$)?

Accepted Answer

The machinery is revalued on 1 June 2015, so it is translated at the rate on that date (NZ$1.1024). Inventory is translated at the rate at the end of the period (NZ$1.3250). Depreciation expense is translated at the average rate for the year (NZ$1.2135). Land is translated at the historical rate (NZ$1.1255).

Question 13

Emu Co Ltd purchased a foreign operation based in Singapore on 1 July 2012.The following information was extracted from the foreign operation's financial statements for the period ended 30 June 2014: $$\begin{array} { | l | r | } 
\hline & { \$ S } \
\hline \text { Equipment (purchased 1 July 2012, revalued 1 June 2014) } & 650000 \
\hline \text { Debentures (issued 1 June 2014) } & 900000 \
\hline \text { Inventory on hand (purchased last quarter 2015) } & 68000 \
\hline \text { Depreciation expense-equipment } & 54000 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 4000000 \
\hline \text { Sales revenue (earned evenly over the period) } & 850000 \
\hline
\end{array}$$ Exchange rate information is: $$\begin{array} { | l | l | } 
\hline 1 \text { July } 2012 & \$ S 1.00 = A \$ 1.0520 \
\hline \text { Average for year ended } 30 \text { June } 2014 & \$ S 1.00 = A \$ 1.0700 \
\hline 1 \text { June 2014 } & \$ S 1.00 = A \$ 1.0735 \
\hline \text { Last quarter } 2014 & \$ S 1.00 = A \$ 1.0600 \
\hline 30 \text { June } 2014 & \$ S 1.00 = A \$ 1.0690 \
\hline
\end{array}$$ What is the amount at which each item will be translated (rounded to the nearest A$)?

Accepted Answer

The correct translation uses the appropriate exchange rates: Equipment at revaluation date (1 June 2014), Debentures at issue date (1 June 2014), Inventory at last quarter 2014 rate, Depreciation and Sales revenue at average rate, and Share capital at acquisition date rate.

Quiz 25: Translating the Financial Statements of Foreign Operations