Financial Translation – Test Bank - 9e

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Chapter 31 Testbank

1. In the consolidation process we combine the financial statements of a parent entity and its controlled entities, subject to a number of adjustments and eliminations.

True   False

2. It makes sense to consolidate financial statements that are presented in different currencies.

True   False

3. Monetary items are defined in AASB 121, paragraph 8 as units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

True   False

4. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as other comprehensive income of the foreign operation.

True   False

5. An intragroup monetary asset (or liability), whether short-term or long-term, can be eliminated against the corresponding intragroup liability (or asset) without showing the results of currency fluctuations in the consolidated financial statements.

True   False

6. If the assets of a foreign operation exceed its liabilities, and the value of the Australian dollar falls relative to the currency of the foreign operations, there will be:

A. a credit to the 'foreign currency translation reserve'.

B. a debit to the 'foreign currency translation reserve'.

C. a credit to 'foreign currency translation revenue'.

D. a debit to the 'foreign currency translation expense'.

7. According to the provisions of AASB 1012, which is consistent with the requirements of AASB 121, post-acquisition movements in equity other than retained profits or accumulated losses of a foreign operation are translated at:

A. the average rate.

B. the historic rate.

C. the market rate.

D. the spot rate.

8. According to the provisions of AASB 1012 which is consistent with the requirements of AASB 121, distributions from retained earnings from a foreign operation are translated at:

A. the exchange rates current at the date of receipt of disbursements.

B. the average rate prevailing during the period.

C. the exchange rates current at the dates when the distributions were first declared.

D. the rate on the balance sheet date.

9. The approach used for translating the accounts of a foreign subsidiary includes:

A. translating post-acquisition changes in equity at the exchange rate current on the balance sheet date

B. translating assets at the spot exchange rate at the date of purchase

C. translating revenue and expense items at the exchange rate current at the applicable transaction dates

D. translating proposed distributions from retained profits at the exchange rate current when the distributions are completed in cash

10. The approach used for translating a foreign operation's accounts includes:

A. translating monetary assets at the closing rate of exchange

B. translating non-monetary assets at the average exchange rate since the date of purchase of the asset.

C. translating post-acquisition movements in share capital and reserves at the closing rate of exchange

D. translating revenues and expenses at the closing rate of exchange

11. The net assets of a foreign operation at 30 June 2025 are constituted as assets of US$400 000 and liabilities of US$250 000.

The parent entity purchased the foreign subsidiary on 1 July 2022. Exchange rate information is as follows:

The foreign operation has not traded during the year ended 30 June 2025, so the net assets remained unchanged during the period.

What is the parent entity's foreign currency exposure with respect to net assets for the year ended 30 June 2025?

A. foreign exchange gain A$197 185

B. foreign exchange gain A$20 610

C. foreign exchange gain A$342 310

D. foreign exchange loss A$6 002

12. The approach used to translate a foreign operation's accounts includes:

A. non-monetary items included in the statement of financial position are translated at the rate current at reporting date

B. equity at the date of investment is translated at the rate for the date when the investment was acquired

C. revenue and expense items are translated at the exchange rates current at the applicable transaction dates

D. All of the given answers are correct.

13. When translating foreign subsidiary financial statements, net assets are translated at the ______ rate, and the components of net assets (equity and retained earnings at the date of purchase) are translated at the ______ rate.

A. current; spot

B. historical; current

C. current; historical

D. spot; current

14. In the process of consolidating the translated financial accounts of a foreign operation, the calculation of non-controlling interests will be affected by the translation process in what way?

A. Non-controlling interests will be reduced or increased by the total amount of translation gain or loss.

B. The tax implications of translation gain or loss will be adjusted through the non-controlling interest account.

C. Non-controlling interests will be allocated a proportion of the foreign currency translation reserve.

D. The calculation of the non-controlling interests is not affected.

15. How would goodwill that arises due to the acquisition of a foreign operation be translated?

A. It will be translated at the rate prevailing on the date of acquisition.

B. It will be translated at the average rate of the period.

C. It will be translated at the closing rates.

D. None of the given answers are correct.

16. Yarra Manufacturing Ltd is an Australian-registered entity that has a subsidiary in Singapore, Kew Ltd.

Kew Ltd 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 dollars.

The presentation currency of Kew Ltd is Australian dollars.

At reporting date, the translation of the financial statements of the Chinese foreign operation resulted in a loss of S$6 500 and the translation of the financial statements of Kew Ltd to its presentation currency resulted to a gain of A$4 500.

Which of the following results is consistent with AASB 121 with respect to consolidated financial statements of Yarra Manufacturing Ltd?

A. A loss of S$6 500 should be recognised in profit and loss.

B. A loss of S$6 500 should be recognised in comprehensive income.

C. A gain of A$4 500 should be recognised in profit and loss.

D. A gain of A$4 500 should be recognised in comprehensive income.

17. Yarra Manufacturing Ltd is an Australian-registered entity that has a subsidiary in Singapore, Kew Ltd.

Kew Ltd 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 dollars.

The presentation currency of Kew Ltd is Australian dollars.

At reporting date, the translation of the financial statements of the Chinese foreign operation resulted in a loss of S$6 500 and the translation of the financial statements of Kew Ltd to its presentation currency resulted to a gain of A$4 500.

Which of the following results is consistent with AASB 121 with respect to separate financial statements of Kew Ltd?

A. A loss of S$6 500 should be recognised in profit and loss.

B. A loss of S$6 500 should be recognised in comprehensive income.

C. A gain of A$4 500 should be recognised in profit and loss.

D. A gain of A$4 500 should be recognised in comprehensive income.

18. Which among the following is the currency in which financial statements are presented?

A. Local currency

B. Functional currency

C. Presentation currency

D. None of the given answers are correct.

19. Which among the following is the currency of the primary economic environment in which the entity operates?

A. Local currency

B. Functional currency

C. Presentation currency

D. None of the given answers are correct.

20. Which among the following is the currency that is used in the country in which the foreign operation is located?

A. Local currency

B. Functional currency

C. Presentation currency

D. None of the given answers are correct.

21.

According to paragraph 16 of AASB 121, the essential feature of a(n) _____________ is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency.

A. monetary item

B. non-monetary item

C. intangible asset

D. None of the given answers are correct.

22. According to paragraph 16 of AASB 121, the essential feature of a _____________ is the absence of right to receive (or an obligation to deliver) a fixed or determinable number of units of currency.

A. monetary item

B. non-monetary item

C. debt instrument

D. None of the given answers are correct.

23. Which among the following is an example of a monetary item?

A. Amount paid for goods and services

B. Goodwill

C. Intangible assets

D. Pensions

24. Which among the following is an example of a non-monetary item?

A. Pensions

B. Other employee benefits to be paid in cash

C. Provisions that are to be settled in cash

D. Goodwill

25. Inventories is an example of:

A. a monetary item

B. a non-monetary item

C. both a monetary and non-monetary item

D. None of the given answers are correct.

26. Cash dividends recognised as a liability is an example of ______________.

A. a monetary item

B. a non-monetary item

C. both a monetary as well as a non-monetary item

D. None of the given answers are correct.

27. AASB 121, paragraph 45, explains that intragroup ____________, assets or liabilities cannot be eliminated against the corresponding intragroup asset or liability without the result of the currency fluctuations being shown in the financial statements.

A. monetary items

B. non-monetary items

C. monetary items, non-monetary items

D. None of the given answers are correct.

28. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus they shall be expressed in the ______________ of the foreign operation and shall be translated at the closing rate in accordance with paragraphs 39 and 42. (AASB 121)

A. local currency

B. functional currency

C. presentation currency

D. None of the given answers are correct.

29. If the foreign operation has acquired inventory from the parent entity, the inventory (as with all assets) is translated at the exchange rate in place at the end of the reporting period, which might also lead to an adjustment to the foreign currency ___________________.

A. translation reserve

B. general reserve

C. capital reserve

D. None of the given answers are correct.

30. Discuss briefly the requirement of translating the financial statements of foreign operations for consolidation purposes.

______________________________________________________________________________

31. Discuss briefly the three different types of currencies used when translating financial statements for the purpose of consolidation.

______________________________________________________________________________

32. What is a local currency?

______________________________________________________________________________

33. What is a functional currency?

______________________________________________________________________________

34. What is a presentation currency?

______________________________________________________________________________

35. Discuss briefly the translation of financial statements where the functional currency is the same as the local currency.

______________________________________________________________________________

36. List the primary indicators an entity considers in determining its functional currency.

______________________________________________________________________________

37. Discuss briefly the consolidation of related assets such as goodwill, according to AASB 121.

______________________________________________________________________________

38. Discuss briefly why an intragroup monetary asset (or liability), whether short-term or long-term, cannot be eliminated against the corresponding intragroup liability (or asset) without showing the results of currency fluctuations in the consolidated financial statements.

______________________________________________________________________________

39. Discuss briefly the requirement related to the elimination of intragroup balances while incorporating the results and financial position of a foreign operation with those of the reporting entity, according to AASB 121.

______________________________________________________________________________

Chapter 31 Testbank