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International CH 8
Terms in this set (40)
risk of translation adjustment
assets and liabilities translated at the current exchange rate are exposed to what type of risk?
when foreign currency appreciates, a net asset exposure results in what type of translation adjustment?
when foreign currency appreciates, a net liability exposure results in what type of translation adjustment
assets and liabilities translated at what rate are not exposed to a translation adjustment?
current/noncurrent, monetary/nonmonetary, temporal (remeasurement), current rate
what are the 4 major methods for translating foreign currency financial statements?
under what method of translating foreign currency financial statements is the objective to translate financial statements as if the sub had been using the parent's currency?
under the temporal method items carried on the sub's books at historical cost (FA) including SE items, are translated at which rate?
current exchange rate
under the temporal method, items carried on the sub's books at current value (cash, marketable securities, receivables, inventory, most liabilities) are translated at what rate?
exchange rate at time of transaction
under the temporal method, income statement items are translated at what rate?
Current Rate Method
Under what method of translating foreign currency financial statements is the objective to reflect that the parent's entire investment in a foreign sub is exposed to exchange risk?
under the current rate method, at what rate are all assets and liabilities translated at?
under the current rate method, what rate is used to translate equity accounts?
rate in effect at transaction
under the current rate method, what rate is used to translate all revenues and expenses?
average exchange rate
under the current method, typically, what rate is used to translate COGS?
what is different about calculating COGS under the temporal method as opposed to the current rate method?
which method produces a translation gain or loss that is reported in net income?
which method produces a cumulative translation adjustment that is reported in stockholders' equity
which method defers the gain or loss until realization?
which method produces a net asset exposure?
which method produces a net liability exposure?
what is defined as the primary currency of the foreign sub's operating environment?
what method is used when the sub's functional currency is the US dollar?
what method is used when the functional currency is a foreign currency (not the US dollar)
cumulative 100% inflation over 3 years; temporal
how are highly inflationary economies defined under US GAAP and what method is used when one exists?
restate for inflation and then use current rate
Under IFRS, what is the process of translating financial statement in a hyperinflationary environment
companies that have foreign subs with highly integrated operations (parent's currency is the functional) use what method to translate?
cumulative translation adjustment in SE
Foreign exchange gains and losses on foreign currency borrowings or foreign currency derivatives employed to hedge translation based exposure (under current method) are treated as a part of what?
remeasurement gain and losses on income statement
foreign exchange gains and losses on balance sheet hedges used to hedge remeasurement based exposure (temporal method) are offset against what?
change in the dollar value of the net investment in the sub if it were to be sold
what does the translation adjustment (current method) reflect?
a foreign operation will have what type of balance sheet exposure when assets translated at the current rate are greater in amount than liabilities translated at the current rate?
a foreign operation will have what type of balance sheet exposure when liabilities translated at the current rate are greater in amount than assets translated at the current rate?
Under the temporal method, if inventory is carried at market value using the lower of cost or market, what exchange rate is used to translate the inventory balance?
assets and liabilities carried at current value (cash, marketable securities, receivables, inventory if carried at market)
under the temporal method, what amounts are used to calculate whether a net asset or net liability exposure exists?
parent currency cost or parent currency market value
Application of the temporal method requires the foreign currency cost and foreign currency market value of the inventory to be translated into parent currency at appropriate exchange rates, and the lower of which two values is reported on the consolidated balance sheet?
which method carries the assumption that foreign subs of US MNCs have very close ties to their parent company and would actually carry out their day-to-day operations and keep their books in the US dollar if they could
US dollar perspective (temporal)
which perspective of translation states that the translation process should create a set of US dollar translate financial statements as if the dollar had actually been used by the foreign sub
If a foreign operation's functional currency is the US dollar, foreign currency balances must be __ into US dollars using the temporal method
when a foreign currency is the functional currency, foreign currency balances are __ using the current rate method
what method is used under US GAAP in a highly inflationary economy?
derivative financial instruments (forward contract, foreign currency option)
Balance sheet exposure can be hedged through the use of what?
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