Question 1

Which of these is NOT a requirement for an entity reporting in a currency of a hyperinflationary economy?

Accepted Answer

The requirement for completing accounts in both the functional and presentation currencies is not related to reporting in a currency of a hyperinflationary economy. The other options are all requirements for such reporting.

Question 2

The financial statement of an entity operating in a hyperinflationary economy requires use of IAS 21 only.

Accepted Answer

In addition to IAS 21, an entity operating in a hyperinflationary economy is also required to use IAS 29 Financial Reporting in Hyperinflationary Economies to prepare its financial statements.

Question 3

The presentation currency is the currency that the subsidiaries use to present their results to head office

Accepted Answer

The presentation currency is the currency in which the financial statements are presented, which may differ from the local currency of the subsidiaries.

Question 4

Which of these is NOT matched to the correct rate when using the temporal method?

Accepted Answer

Exchange differences are not matched to the closing rate; they arise from the difference between the historical rate and the closing rate when monetary items are translated.

Question 5

Entity X is an Italian subsidiary of a Japanese company which trades exclusively with American companies.Which is their presentation currency?

Accepted Answer

The answer of Entity X is an Italian subsidiary of...

Question 6

What is the difference between currency conversion and currency translation?

Accepted Answer

The answer of What is the difference between currency conversion...

Question 7

Which of the following is NOT a form of hedging?

Accepted Answer

Bonds are not a form of hedging, but rather an investment vehicle. Bondholders may use hedging techniques to manage the risks associated with their bond investments, but the bonds themselves are not a form of hedging. Swaps, options, and forwards, on the other hand, are all financial instruments that can be used for hedging purposes.

Question 8

IAS 21 treats functional currency monetary and non-monetary items in the same way.

Accepted Answer

IAS 21 differentiates between monetary and non-monetary items. Monetary items are translated using the closing rate at the date of the statement of financial position, whereas non-monetary items are translated using the exchange rate at the date of the transaction.

Question 9

IAS 21 Requires translation of assets and liabilities at closing rate

Accepted Answer

IAS 21 requires that assets and liabilities of foreign operations be translated into the reporting currency at the closing rate on the balance sheet date.

Question 10

An entity can hedge the exposure position of a foreign investment by raising loans in a foreign country denominated in the functional currency of the foreign operation

Accepted Answer

By raising loans denominated in the functional currency of the foreign operation, the entity can offset currency fluctuations and mitigate the risk of exchange rate volatility on their foreign investment. This is a common hedging strategy known as natural hedging.

Quiz 30: Foreign Currency Translation

Which of these is NOT a requirement for an entity reporting in a currency of a hyperinflationary economy?