Exam 8: Accounting for Foreign Investments

Each company in a group records its foreign currency transactions at the year end rate.

In the determination of the functional currency, the currency that mainly influences labour, material and other costs of providing goods or services is a(n)_________________ indicator.

All of the following are considered to be consolidation adjustments EXCEPT

Monetary items are restated at the spot rate and any gain or loss is recorded in income.

Each company in a group records its foreign currency transactions at the:

When translating foreign currency financial statements for a company whose functional currency is the Canadian dollar, into a group financial statement presented in Canadian dollars, which of the following accounts is translated using historical exchange rates? Notes Payable Equipment

Consolidated financial statements are required to be prepared when an entity controls one or more other entities (otherwise known as financial statements for a group).

Which of the following statements regarding hedge accounting within a group is FALSE?

In order to determine what is considered to be a "functional currency," it is imperative that a "foreign currency" be first identified.

Under ASPE, the ______________ is assumed to be the reporting currency, although any currency can be determined to be the ______________ currency.

How is the translation of the financial statements into a presentation currency completed?

Which of the following statements regarding the preparation of foreign currency adjustments for consolidation or the application of the equity method is FALSE?

In preparing consolidated financial statements of a Canadian parent company and a foreign subsidiary, the foreign subsidiary's functional currency is the currency

What are the primary indicators that need to be considered in the determination of a functional currency?

Which of the following statements relating to a functional currency is FALSE?

On January 1, 2014, Tiller Inc. of Toronto purchased 75% of the outstanding shares of Robinson Limited of London, England. Robinson Limited's statements of financial position, statements of comprehensive income and changes in equity - retained earnings section for the year ended December 31, 2014 are below. ROBINSON LIMITED Statement of Financial Position As at December 31, 2014 (in thousands of £'s) Assets 2014 2013 Cash 50 20 Accounts Receivable 575 280 Inventories 825 650 Equipment, net 2,670 2,937 Total assets 4,120 3,887 Liabilities Accounts payable 465 395 Bonds payable 1,290 1,290 Common shares 1,200 1,200 Retained Earnings 1,165 1,002 Total liabilities and shareholders' equity 4.120 3,887 ROBINSON LIMITED Statement of Comprehensive Income For the year ended December 31, 2014 (in thousands of £'s) £ Sales 2,170 Cost of goods sold 1,203 Depreciation expense 267 Interest expense 80 Other expenses Comprehensive income ROBINSON LIMITED Statement of Changes in Equity-Partial-Retained earnings section For the year ended December 31, 2014 (in thousands of £) £ Retained earnings - January 1,2014 1,002 Comprehensive income for the year 213 Dividends paid (50) Retained earnings - December 31,2014 1,165 Additional information: 1. Robinson was incorporated on January 1, 2010 when it acquired all its equipment for £4,005,000 and issued its 10 year bonds payable. 2. Robinson purchases and sales occurred evenly over the year. Inventories on hand at December 31, 2013 and December 2014 were purchased evenly over the last quarter of 2013 and 2014, respectively. Inventories as at January 1, 2014 were £650,000. 3. Dividends were paid on March 31, 2014. 4. Foreign exchanges rates are as follows: January 1, 2010 £1=\ 1.95 Average for Oct to Dec, 2013 £1=\ 1.64 Average for 2013 £1=\ 1.73 December 31, 2013/January 1,2014 £1=\ 1.67 March 31, 2014 £1=\ 1.61 Average for Oct to Dec, 2014 £1=\ 1.55 Average for 2014 £1=\ 1.57 December 31, 2014 £1=\ 1.52 Required: A)Translate Robinson's statement of comprehensive income for the year ended December 31, 2014 into Canadian dollars assuming its functional currency is Canadian dollars. B)Calculate the translation gain or loss arising in 2014.

Whether the foreign operation's activities are relatively autonomous of those of the parent entity or whether they are carried out as an extension thereof is what type of indicator in determining the functional currency of a foreign operation?

Komota Ltd., a public Canadian corporation, has a subsidiary in Australia. It has been determined that the functional currency of the foreign operations is the Australian dollar. Which of the following statements is TRUE?

When any fair value adjustments exist on the carrying amounts of assets and liabilities arising on the acquisition of a foreign operation, they are treated as assets and liabilities ________________ for the purposes of translation. Therefore, they are carried in the _______________ currency of the foreign operation and are translated at the closing rate (i.e. using the current rate method)for the purposes of presentation on consolidation.

Fair value adjustments must be reflected on the balance sheet at the closing rate for the year.