Question 1

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

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Question 2

Distinguish monetary items from non-monetary items.Provide two examples of each.

Accepted Answer

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Question 3

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 remeasured 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

Accepted Answer

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

Question 4

Contrast how statement of financial position items of foreign operations are translated between translation to functional currency and translation to presentation currency as prescribed in AASB 121.

Accepted Answer

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Question 5

Lennon Ltd has two foreign operations based in Japan.The following information was extracted from the foreign operation's accounts for the period ended 30 June 2015: $$\begin{array} { | l | r | r | } 
\hline \text { In Japanese yen } ( ¥ ) & \text { Yoko Ltd } & \text { Ono Ltd } \
\hline \text { Machinery (at cost purchased 1 July 2013) } & 85000 & 100000 \
\hline \text { Inventory on hand (purchased second quarter 2015) } & 1000 & 25000 \
\hline \text { Depreciation expense-machinery } & 8200 & 10000 \
\hline \text { Land (purchased 1 July 2013, revalued 1 June 2015) } & 150000 & 200000 \
\hline
\end{array}$$ Exchange rate information is:
$$\begin{array} { | l | l | } 
\hline \text { July } 2013 & \text { A\$1.00 } = ¥ 74 \
\hline \text { Average for year ended } 30 \text { June } 2015 & \text { A\$1.00 } = ¥ 65 \
\hline 1 \text { June } 2015 & \text { A\$1.00 } = ¥ 68 \
\hline \text { Second quarter } 2015 & \text { A\$1.00 } = ¥ 67 \
\hline 30 \text { June } 2015 & \text { A\$1.00 } = ¥ 61 \
\hline
\end{array}$$ The translation from Japanese yen to Australian dollars resulted in the following balances (rounded to the nearest ¥000):
$$\begin{array} { | l | r | r | } 
\hline \text { In Japanese yen } ( ¥ \text { ) } & \text { Yoko Ltd } & \text { Ono Ltd } \
\hline \text { Machinery (at cost purchased 1 July 2013) } & 1149 & 1639 \
\hline \text { Inventory on hand (purchased second quarter 2015) } & 239 & 410 \
\hline \text { Depreciation expense-machinery } & 111 & 154 \
\hline \text { Land (purchased 1 July 2013, revalued 1 June 2015) } & 2205 & 3278 \
\hline
\end{array}$$ Which of the following translation processes were applied to Yoko Ltd and Ono Ltd,respectively,for the year ended 30 June 2015?
A) functional currency; presentation currency
B) functional currency; functional currency
C) presentation currency; functional currency
D) presentation currency; presentation currency

Accepted Answer

The translation process involves converting the financial statements of foreign operations (Yoko Ltd and Ono Ltd) from their functional currency (Japanese yen) to the presentation currency (Australian dollars). The details provided, including the exchange rates used for different assets and expenses, indicate that the financial statements were translated from the functional currency (Japanese yen) to the presentation currency (Australian dollars) for both Yoko Ltd and Ono Ltd.

Question 6

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.

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

Question 7

As prescribed in AASB 121,when remeasuring 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

Accepted Answer

According to AASB 121, items that should be re-measured at historic rates include all assets and liabilities, including goodwill, property plant and equipment, and inventory.

Question 8

Explain how foreign currency translation reserves arise.When and how are these derecognised?

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Question 9

When translating non-monetary liabilities into the functional currency,the translation rate used is:
A) the rate at date of valuation.
B) the closing rate.
C) the spot rate.
D) the average rate.

Accepted Answer

Non-monetary liabilities are translated using the rate at the date of valuation, as they are not remeasured at each reporting date.

Question 10

Rudd Ltd,an Australian entity purchased Lee Ltd and Kew Ltd on 1 July 2012.Both entities are considered foreign operations of Rudd Ltd based in Singapore.The following information was extracted from the foreign operation's accounts for the period ended 30 June 2015: $$\begin{array} { | l | r | r | } 
\hline \text { In Singapore \$ } & \text { Lee Ltd } & \text { Kew Ltd } \
\hline \text { Equipment (purchased 1 July 2012, revalued 1 June 2014) } & 650000 & 200000 \
\hline \text { Debentures (issued 1 June 2014) } & 900000 & 500000 \
\hline \text { Inventory—asset (purchased last quarter 2015) } & 68000 & 50000 \
\hline \text { Depreciation expense-equipment } & 54000 & 25000 \
\hline \text { Share capital at acquisition of foreign operation } & 4000000 & 2000000 \
\hline \text { Sales revenue (earned evenly over the period) } & 850000 & 680000 \
\hline
\end{array}$$ Exchange rate information is:
$$\begin{array} { | l | l |} 
\hline
1 \text { July } 2012 & \$ S 1.00 = A \$ 1.0520 \
\hline \text { Average for year ended } 30 \text { June } 2015 & \$ S 1.00 = A \$ 1.0700 \
\hline 1 \text { June } 2014 & \$ S 1.00 = A \$ 1.0735 \
\hline \text { Second quarter } 2015 & \$ S 1.00 = A \$ 1.0600 \
\hline 30 \text { June } 2015 & \$ S 1.00 = A \$ 1.0690 \
\hline
\end{array}$$ The translation from Singapore dollars to Australian dollars resulted to the following balances:
$$\begin{array} { | l | r | r | } 
\hline \text { In Singapore \$ } & \text { Lee Ltd } & \text { Kew Ltd } \
\hline \text { Equipment (purchased 1 July 2012, revalued 1 June 2014) } & 694850 & 214700 \
\hline \text { Debentures (issued 1 June 2014) } & 962100 & 962100 \
\hline \text { Inventory on hand(second quarter 2015) } & 72692 & 53000 \
\hline \text { Depreciation expense-equipment } & 57780 & 26838 \
\hline \text { Share capital at acquisition of foreign subsidiary } & 4208000 & 2104000 \
\hline \text { Sales revenue (earned evenly over the period) } & 909500 & 727600 \
\hline
\end{array}$$ Which of the following translation processes were applied to Lee Ltd and Kew Ltd,respectively,for the year ended 30 June 2015?
A) functional currency; presentation currency
B) functional currency; functional currency
C) presentation currency; functional currency
D) presentation currency; presentation currency

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Question 11

Explain how non-controlling interests are determined following the translation of the financial statements.

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Question 12

When a parent entity has an overseas subsidiary the first task before consolidation is to:
A) translate the financial statements from the functional currency to the presentation currency.
B) translate the financial statements from the presentation currency to the functional currency.
C) determine the functional currency of the overseas subsidiary.
D) determine the functional currency of the parent entity.

Accepted Answer

Before consolidating the financial statements of the overseas subsidiary, it is necessary to determine its functional currency. This is because the financial statements need to be translated to the reporting currency of the parent entity for consolidation purposes. The functional currency is the currency of the primary economic environment in which the subsidiary operates and generates cash flows. Once the functional currency is determined, the financial statements can be translated from the functional currency to the presentation currency.

Quiz 33: Translating the Financial Statements of Foreign Operations

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

Distinguish monetary items from non-monetary items.Provide two examples of each.

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 remeasured at historic rates?

Contrast how statement of financial position items of foreign operations are translated between translation to functional currency and translation to presentation currency as prescribed in AASB 121.

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.

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

Explain how foreign currency translation reserves arise.When and how are these derecognised?

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

Explain how non-controlling interests are determined following the translation of the financial statements.

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