Question 1

If a parent company has a subsidiary in a country where the cumulative rate of inflation for the past three years is around 100 percent, which translation methodology would they use according to the IASC?

Accepted Answer

The IASC (International Accounting Standards Committee) suggests using the current rate method after adjusting for inflation in hyperinflationary economies, where cumulative inflation is around 100% over three years.

Question 2

According to FASB Statement No. 8,

Accepted Answer

The answer of According to FASB Statement No. 8,
...

Question 3

According to the current-rate method of translating foreign currency financial statements,

Accepted Answer

Under the current-rate method, all assets and liabilities are translated at the current exchange rate, while owner's equity is translated at historical exchange rates.

Question 4

Which foreign currency translation standard uses the following objective:
"1) Provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity.
2) Reflect in consolidated statements the financial results and relationships of the individual consolidated entities as measured in their functional currencies in conformity with generally accepted accounting principles."

Accepted Answer

This objective is one of the fundamental principles of foreign currency translation under FASB Statement 52, which provides guidance on how to translate foreign entities' financial statements into the reporting currency of the parent company. The other options either do not address this objective or are not relevant to foreign currency translation.

Question 5

If a U.S.-based company has a subsidiary in Germany, and the German subsidiary imports components from Britain, the British pound would most likely be considered (from the standpoint of the German subsidiary)

Accepted Answer

The British pound would be considered a foreign currency from the standpoint of the German subsidiary because it is not the local currency (Euro) and it is not the functional currency (which would depend on the subsidiary's primary economic environment). The reporting currency would depend on the parent company's reporting requirements.

Question 6

According to IAS 21,

Accepted Answer

The answer of According to IAS 21,
...

Question 7

The reporting currency is

Accepted Answer

The reporting currency is the currency in which the parent company prepares its financial statements. It is the currency used to consolidate the financial statements of a company's subsidiaries and affiliates located in different countries.

Question 8

The functional currency is

Accepted Answer

The functional currency is the currency of the primary economic environment in which the firm operates. It represents the currency in which the company generates and expends cash flows and typically reflects the currency of the country in which the majority of its operations are located.

Question 9

Which foreign currency translation standard uses the following objective: "for the purpose of preparing an enterprise's financial statements, the objective of translation is to measure and express (a) in dollars and (b) in conformity with U.S. generally accepted accounting principles (GAAP) the assets, liabilities, revenues, or expenses that are measured or denominated in foreign currency."

Accepted Answer

The answer of Which foreign currency translation standard uses the...

Question 10

The local currency is

Accepted Answer

The answer of The local currency is
...

Question 11

The currency of the country where the foreign company is operating is the

Accepted Answer

The local currency is the currency of the country where a foreign company is operating. It is the currency used by the local population and businesses to conduct transactions. Base currency is a term used in foreign exchange trading to refer to the currency against which other currencies are quoted. Parent currency and third country currency are not relevant to the currency of the country where the foreign company is operating.

Question 12

The currency of the primary economic environment in which the firm operates is the

Accepted Answer

The functional currency is the currency of the primary economic environment in which the firm operates. It is the currency that is most relevant to measuring the financial results of the firm's operations. The reporting currency is the currency in which the firm prepares its financial statements, which may or may not be the same as the functional currency. The historical currency is the currency in which a transaction or event initially occurred, but it may not be relevant to the firm's current operations. The base currency is a term used in foreign exchange trading, referring to the currency against which other currencies are measured, but it does not necessarily relate to the firm's primary economic environment.

Question 13

The translation method in which current assets and liabilities are translated at current exchange rates and other assets, liabilities and owner's equity are translated at historical exchange rates is known as the

Accepted Answer

The current-noncurrent method translates current assets and liabilities at the current exchange rate and other assets, liabilities, and owner's equity at the historical exchange rate.

Question 14

The translation methodology that translates only owner's equity at historical exchange rates is the

Accepted Answer

The current rate method translates only owner's equity at historical exchange rates.

Question 15

The translation methodology which assumes that the only assets that should be translated at the historical rate are those carried at past exchange prices is the

Accepted Answer

The assumption described in the question is characteristic of the temporal method, which separates assets and liabilities into monetary and non-monetary categories and translates them differently based on whether they are carried at historical or current exchange rates. The current-noncurrent and monetary-nonmonetary methods are not relevant to this particular assumption, and the current rate method does not differentiate assets based on past exchange prices.

Question 16

The translation method which uses as the basis for its logic that financial assets and liabilities have similar attributes and should be translated at the same exchange rate is the

Accepted Answer

The method described is the monetary-nonmonetary method, which classifies assets and liabilities as either monetary or non-monetary and translates them at different exchange rates. It is based on the recognition that monetary items, i.e. those with fixed or determinable payments, are sensitive to changes in exchange rates whereas non-monetary items, i.e. those with variable payments, are not.

Question 17

From the standpoint of the parent company, a foreign currency is

Accepted Answer

A foreign currency, from the standpoint of the parent company, is any currency other than the parent's currency.

Question 18

According to the temporal method of translating foreign currency financial statements,

Accepted Answer

The temporal method translates monetary items at the current exchange rate and non-monetary items at historical rates, which includes assets carried at past exchange prices.

Question 19

The currency in which the parent company prepares its financial statements is the

Accepted Answer

The reporting currency is the currency in which the parent company prepares its financial statements. This is the currency used for the presentation of the financial reports to the stakeholders, including investors, creditors, and regulatory bodies.

Question 20

According to the current-rate method of translating financial statements,

Accepted Answer

The answer of According to the current-rate method of translating...

Quiz 10: Foreign Currency Transactions and Translation