Certificate in International Financial Reporting Foreign Currency and Hyperinflationary Economies

Question 1

Under IAS 21, how is 'functional currency' defined?

Accepted Answer

The currency of the primary economic environment in which an entity operates

Answer

The currency in which the entity's financial statements are presented to investors

Answer

The currency used for the entity's tax reporting purposes

Answer

The currency with the lowest inflation rate among countries where the entity operates

Question 2

Under IAS 21, how should monetary items denominated in a foreign currency be translated at the reporting date?

Accepted Answer

At the closing (spot) rate at the reporting date

Answer

At the historical exchange rate on the date of the original transaction

Answer

At the average exchange rate for the reporting period

Answer

At the rate stipulated in the underlying contract

Question 3

Which of the following is a non-monetary item under IAS 21?

Accepted Answer

Inventory measured at historical cost

Answer

Trade receivables denominated in a foreign currency

Answer

Cash held in a foreign currency bank account

Answer

Bonds payable denominated in a foreign currency

Question 4

An entity with a USD functional currency holds a EUR-denominated trade receivable. Between the transaction date and year-end, the EUR strengthens against the USD. Where is the resulting exchange difference recognized?

Accepted Answer

In profit or loss for the period

Answer

In other comprehensive income until the receivable is collected

Answer

Deferred in equity until settlement

Answer

Adjusted retrospectively against the original revenue figure

Question 5

Under IAS 21, what exchange rate is used to translate a non-monetary item carried at historical cost?

Accepted Answer

The historical rate at the date of the transaction

Answer

The closing rate at the reporting date

Answer

The average rate for the current period

Answer

The forward rate applicable to the expected settlement date

Question 6

When translating the financial statements of a foreign subsidiary for consolidation, IAS 21 requires income and expense items to be translated at:

Accepted Answer

Exchange rates at the dates of the transactions, with the average rate permitted as a practical approximation

Answer

The closing rate at the reporting date

Answer

The historical rate at the date of acquisition of the subsidiary

Answer

The lowest rate recorded during the reporting period

Question 7

Under IAS 21, exchange differences arising on translation of a foreign subsidiary's net assets should be:

Accepted Answer

Recognized in other comprehensive income and accumulated in a separate translation reserve in equity

Answer

Recognized immediately in profit or loss each period

Answer

Deferred indefinitely in equity with no subsequent recycling

Answer

Treated as an adjustment to goodwill arising on acquisition