Chapter 27 - Multiple choice quiz

In order for the financial statements of a foreign operation to be included in the consolidated financial statements of the parent it is necessary to translate the foreign operation's financial statements into:

A.	the presentation currency of the reporting entity;

B.	the functional currency of the foreign operation;

C.	the local currency of the foreign operation;

D.	the domestic currency of the foreign operation;

For the purposes of presenting consolidated financial statements a foreign operation's financial statements must be converted from the foreign currency denominated currency into:

A.	the currency in which the sales prices are denominated;

B.	the currency in which financing activities are generated;

C.	the presentation currency of the reporting entity;

D.	the currency in which receipts from operating activities are retained.

A foreign currency transaction must be initially recorded in which of the following currencies? The:

A.	local currency;

B.	domestic currency;

C.	functional currency;

D.	presentation currency.

The functional currency of a foreign subsidiary is most likely to be its local currency when:

A.	the subsidiary is acting as an intermediate of the parent

B.	the subsidiary's operations are interdependent with those of the parent

C.	the subsidiary operates independently from the parent

D.	there is a high interrelationship between sales in the local currency and the currency of the parent

Which of the following is a primary factor outlined in AASB 121 in relation to the determination of the functional currency?

A.	the currency in which funds from financing activities are generated

B.	the currency in which sales prices are denominated

C.	whether transactions with the reporting entity are a high or low proportion of the foreign operations activities

D.	the currency in which receipts from operating activities are retained

When translating into the functional currency monetary liabilities are translated using the:

A.	exchange rate current at the date the item was first recorded;

B.	exchange rate prevailing at the end of the last reporting period;

C.	closing exchange rate;

D.	exchange rate current at end of reporting period.

When translating into the functional currency foreign currency denominated non-monetary items measured using historical cost must be translated using the:

A.	rate current at end of reporting period;

B.	average rate for the reporting period;

C.	exchange rate at the date of the transaction;

D.	rate prevailing at the end of the last financial year.

When translating foreign currency denominated financial statements into the functional currency, the exchange differences are recognised:

A.	as an item of gain or loss in the statement of comprehensive income;

B.	directly in the retained earnings account;

C.	as a deferred asset or liability;

D.	as a separate component of equity.

If foreign currency denominated non-monetary items are measured using the fair value method, they must be translated into the functional currency using the:

A.	exchange rate at the date when the value was determined;

B.	exchange rate current at end of reporting period;

C.	closing exchange rate for the financial year;

D.	exchange rate at the transaction date.

10.

Monetary items are best described as:

A.	plant and equipment;

B.	units of currency held and assets and liabilities to be received or paid in fixed numbers of currency units;

C.	all intangible items including goodwill;

D.	all items that are contingent in nature.

11.

Prior to translation into the functional currency, assets must first be classified as:

A.	current or non-current;

B.	monetary or non-monetary;

C.	tangible or intangible;

D.	current or deferred.

12.

Foreign currency denominated equity items that existed at acquisition date are translated into the functional currency using the:

A.	current rate at end of reporting period;

B.	exchange rate at the end of the financial year;

C.	the average exchange rate since acquisition date;

D.	rate existing at the date of acquisition.

13.

Post acquisition date retained earnings that are denominated in a foreign currency are:

A.	translated into the functional currency using the rate current at the latest end of reporting period;

B.	translated into the functional currency using the average rate since acquisition date;

C.	translated into the functional currency using the rates at the end of each year since acquisition date;

D.	balances carried forward from translation of previous statement of comprehensive income and do not need to be translated.

14.

The general rule for translating statement of comprehensive income items denominated in a foreign currency into the functional currency is to use the:

A.	rates current at the dates the transactions occur;

B.	rate current at end of reporting period;

C.	rate current at acquisition date;

D.	average rate since acquisition date.

15.

Foreign currency denominated dividends paid are translated into the functional currency using the rate current at the date of the payment while dividends declared are translated using:

A.	the rate current at end of reporting period;

B.	the rate current at the date of the proposal;

C.	the average rate for the current period;

D.	the rate at the date of acquisition.

16.

Exchange differences in respect to non-monetary items arise only when they are acquired or sold because they are translated using a rate that is:

A.	current at the end of each year;

B.	averaged across the period since acquisition date;

C.	the same from year to year

D.	revalued each year.

17.

Exchange differences resulting from translating an statement of comprehensive income are created by translating:

A.	monetary items;

B.	non-monetary items;

C.	depreciation expense;

D.	amortisation expense.

18.

Aussie Ltd has an investment in Yankee Inc. The shares in Yankee were acquired on 15 August 2004. Yankee uses the revaluation model to account for land & buildings. A building which was acquired by Yankee on 1 April 2002 was revalued on 15 March 2009. The exchange rate used to translate the movement in the revaluation reserve arising as a result of the revaluation of land & buildings when preparing the financial statements for the year ended 30 June 2009 is the rate that applied on:

A.	1 April 2002

B.	15 August 2004

C.	15 March 2009

D.	30 June 2009

19.

Which of the following statements is correct in relation to a change in functional currency?

A.	where there is a change in the functional currency the translation procedures apply from the beginning of the period in which the changes arise.

B.	changes in an entity's functional currency are accounted for an a retrospective basis

C.	where a foreign subsidiary's functional currency is that of the parent AASB 121 prohibits a change of functional currency to the local currency of the subsidiary

D.	changes in an entity's functional currency are accounted for an a prospective basis

20.

Mortimer Limited has the following items in its statement of comprehensive income:
Revenue $40 000,
Cost of goods sold $15 000,
Interest expense $10 000,
Income tax expense $5 000.

All items arose evenly across the year. The following exchange rates applied:

Functional currency FC1 = Presentation currency PC
End of reporting period 0.75
Average rate for year 0.80

The net profit after tax translated into the presentation currency is:

$7 500;

$9 250;

$8 000;

$8 250.

21.

When translating from the functional currency into the presentation currency assets and liabilities are translated using:

A.	closing rate at the acquisition date;

B.	closing rate at the date of that end of reporting period;

C.	average rate since the previous end of reporting period;

D.	transaction date rate for each asset and liability.

22.

When translating foreign currency denominated financial statements from a functional currency into a presentational currency, the exchange differences are recognised:

A.	as an item of gain or loss in the statement of comprehensive income;

B.	directly in the retained earnings account;

C.	as a deferred asset or liability;

D.	as a separate component of equity.

23.

When translating contra-asset accounts such as accumulated depreciation from a functional currency into a presentation currency, the appropriate exchange rate is the:

A.	rate current at the reporting date;

B.	acquisition date rate;

C.	average rate for the current period;

D.	rate existing at the date of acquiring each underlying balance sheet item.

24.

For practical reasons statement of comprehensive income items that occur regularly across the reporting period are translated from the functional currency into the presentational currency using the:

A.	rate current at end of reporting period;

B.	rate existing at acquisition date;

C.	average rate for the period;

D.	spot exchange rate at end of reporting period.

25.

Where a parent entity obtains an overseas subsidiary by acquiring an already existing operation the point of time at which historical rates for translation are set is determined by the date:

A.	at which control is achieved;

B.	on which dividends are first declared by the subsidiary;

C.	of the first reporting period after the acquisition;

D.	on which the foreign subsidiary first commences operations.

26.

Aussie Ltd has a controlling interest in Malaya SdnBdh. On 1 June 2009 Malaya sold inventory to Aussie for 10 000 ringgit. The inventory was originally acquired by Malaya on 18 May 2009 for 7 000 ringgit. Half of the inventory was still held by Aussie at 30 June 2009. The Australian tax rate is 30% and the Malaysian tax rate is 20%.

Exchange rates are as follows:

	A$	=	Ringgit
18 May 2009	1.00	=	5.00
1 June 2009	1.00	=	6.00
30 June 2009	1.00	=	7.00
X8-X9 average	1.00	=	8.00

The credit to cost of goods sold to eliminate the intragroup sale (to the nearest whole dollar) is:

A$214

A$250

A$429

A$500

27.

	A$	=	Ringgit
18 May 2009	1.00	=	5.00
1 June 2009	1.00	=	6.00
30 June 2009	1.00	=	7.00
X8-X9 average	1.00	=	8.00

The credit to income tax expense to eliminate the intragroup sale (to the nearest whole dollar) is:

A$50

A$75

A$100

A$150

28.

A Ltd has an 80% investment in B Inc. A Ltd lent $US500,000 to B Inc on 1 January 2009. The loan is considered to form part of the net investment in B Inc. The functional currency of A Ltd is Australian dollars and for B Inc is US dollars.

The exchange rate on 1 January 2009 was $A1.00 = $US0.875 and on 30 June 2009 was $A1.00 = $US0.750.

The consolidation adjustment to the foreign currency translation reserve at 30 June 2009 in relation to the loan (to the nearest whole dollar) is:

A.	$62 500 credit

B.	$62 500 debit

C.	$95 238 credit

D.	$95 238 debit

29.

AASB 121 requires disclosure of the following:

I	foreign exchange gain or loss for the period
II	a reconciliation of movements in the foreign currency translation reserve for the year
III	the functional currency
IV	the presentation currency

A.	I, II and III

B.	II, III and IV

C.	I, III and IV

D.	I, II and IV

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