Professional Documents
Culture Documents
1. Under IAS 21, which of the following statements pertains to functional currency?
a. It refers to the currency of the primary economic environment in which the
entity operates. functional
b. It refers to the currency in which the financial statements are presented.
presentation currency
c. It refers to the currency other than the functional currency of the entity. third
currency
d. It refers to the type of currency in a given jurisdiction which a creditor may be
compelled to accept.
functional currency
presentation currency
foreign currency (FCU)
local currency (LCU)
$1 : P48. 50
FOREX Loss 44
Accounts Payable 44
$1 : P48.35
2. Under IAS 21, what is the initial measurement of foreign currency denominated
transaction?
a. Both monetary and nonmonetary items are measured initially at transaction
or historical rate.
b. Monetary items are measured at closing rate while nonmonetary items are
measured at transaction rate.
c. Monetary items are measured at transaction rate while nonmonetary items are
measured at closing rate.
d. Both monetary and nonmonetary items are measured initially at closing rate.
3. Under IAS 21, what is the subsequent measurement of nonmonetary items?
a. Closing rate
b. Transaction rate
c. Average rate
d. Monthly rate
6. Which of the following items will result to foreign currency transaction gain/loss due
to settlement or remeasurement?
a. Foreign currency denominated income statement accounts such as revenue,
income, expense or loss.
b. Foreign currency denominated non-monetary assets such as inventory, PPE,
intangible asset or prepaid asset.
c. Foreign currency denominated monetary items such as accounts payable,
accounts receivable, notes payable, loans receivable or interest payable.
d. Foreign currency denominated non-monetary liabilities such as unearned revenue,
warranty liability, premium liability and deferred tax liability.
e. Foreign currency denominated equity accounts such as ordinary shares,
preference shares, treasury shares and share premium.
7. IAS 21 provides that an entity may present its financial statements in any currency
even different from its functional currency. When the company translates its
financial statements from its functional currency to its selected presentation
currency, how shall the exchange differences arising from the translation be
recognized?
a. It shall be recognized in profit or loss.
b. It shall be recognized in other comprehensive income with reclassification
adjustment to profit or loss if realized.
c. It shall be recognized in other comprehensive income without reclassification
adjustment and reclassified directly to retained earnings if realized.
d. It shall be recognized directly to retained earnings.
8. When translating the financial statements of an entity from its functional currency
to its selected presentation currency, which of the following translation
measurements is incorrect?
a. Assets and liabilities are translated at the closing rate at the date of statement of
financial position.TRUE
b. Income and expenses are translated at (1) exchange rates at the date of the
transaction or (2) Average rate for the period for practicality.TRUE
c. Equity accounts other than retained earnings are translated at the date of the
transaction resulting in that equity item.TRUE
d. Retained earnings are translated using the average rate during the period.
Problem 1. The following data were taken from the trial balance on
December 31,2020 of Foreign Co., a subsidiary of Manila Co.
(in FCUs)
*RE, 12/31/20
*Assuming the exchange rate at the end of last year is same with the
exchange rate at the beginning of the current year (not always true to all
situations)
Problem 2. The following data are taken from the records of Elite
Imports Company, a foreign subsidiary in New Zealand.
NZ dollar
Total Assets 12/31/20 146,000
Total Liabilities 12/31/20 45,000
Common Stock 12/31/20 60,000
Retained Earnings 01/01/20 29,000
Net Income 2020 15,000
Dividends Declared 12/31/20 3,000
Exchange rates:
Closing/Current rate P 10
Historical rate 11
Weighted Average Rate 12
Solution:
Total Assets 146,000 x 10 = P1,460,000
========
*RE, 12/31/20
Assets
January 1, 2020 S$ 1 = P 45
December 31, 2020 S$ 1 = P 42.50
December 31, 2021 S$ 1 = P 47.50
Average 2020 S$ 1 = P 43.75
September 12, 2020 S$ 1 = P 40
Cleared formed the subsidiary on January 1, 2020. Income of the subsidiary was earned
evenly throughout the years and the subsidiary declared dividends worth S$15,000 on
September 12, 2020 and none were declared during 2021.
A. P1,818,750
B. P1,706,250
C. P3,018,750 Translation gain in year 2/ increase in year 2
D. P2,625,000
Solution: FS Approach
2020 S$
Total Assets 1,702,500 x 42.50 = P72,356,250
=========
*RE, 12/31/20
2021
*RE, 12/31/21
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