Accounting For Foreign Currency Transactions

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Questions Bank

An Overview of the International External Reporting Environment
The Conceptual Framework of Accounting and Its Relevance to Financial Reporting
Theories of Financial Accounting
An Overview of Accounting for Assets
Depreciation of Property, Plant and Equipment
Revaluations and Impairment Testing of Non-Current Assets
Inventory
Accounting for Intangibles
An Overview of Accounting for Liabilities
Accounting for Leases
Share Capital, Reserves and Share Options Employee Bonus Schemes
Accounting for Financial Instruments
Revenue Recognition Issues
The Statement of Comprehensive Income and Statement of Changes in Equity
Accounting for Income Taxes
The Statement of Cash Flows
Events Occurring After the Reporting Date
Related-Party Disclosures
Earnings Per Share
Further Consolidation Issues I: Accounting for Intragroup Transactions
Further Consolidation Issues II: Accounting for Non-Controlling Interests
Further Consolidation Issues III: Accounting for Indirect Ownership Interest
Accounting for Foreign Currency Transactions
Translating the Financial Statements of Foreign Operations
Accounting for Corporate Social Responsibility

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Question 1

Free

True/False

Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.

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True

False

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Question 2

Free

True/False

Inventory is an example of a monetary item.

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True

False

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Question 3

Free

True/False

The essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver)a fixed or determinable number of units of currency.

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True

False

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Question 4

Free

True/False

IAS 21 requires foreign currency transactions to be recorded,on initial recognition in the presentation currency,by applying to the foreign currency amount the spot exchange rate between the presentation currency and the foreign currency at the date of the transaction.

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True

False

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Question 5

Free

True/False

The purpose of 'hedge accounting' is to recognise the offsetting effects on profit or loss of changes in the nominal values of the financial instrument and the hedging instrument.

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Question 6

True/False

IAS 21 defines an exchange rate as a ratio for the exchange of two currencies at a particular time.

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Question 7

True/False

In selecting the appropriate foreign currency exchange rates to apply in translating foreign currency transactions,the accountant exercises an important element of judgment about whether the rates are overvaluing or undervaluing the reporting currency.

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True

False

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Question 8

True/False

Exchange gains or losses on a qualifying asset that arise before it ceases to be a qualifying asset are to be deferred and amortised over the life of the asset according to IAS 23.

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True

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Question 9

True/False

A hedge is defined by IAS 39 as an action taken,whether by entering into a foreign currency contract or otherwise,with the objective of maximising the possible positive effects of movements in exchange rates.

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Question 10

True/False

To classify an arrangement as a hedge,and therefore to apply 'hedge accounting',IAS 32 requires a set of strict conditions be met.

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Question 11

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It seems pointless to distinguish between different types of hedges,as the accounting treatment is the same for all hedging,that is,all changes in fair values of hedging instruments are recognised in profit or loss.

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Question 12

True/False

Hedges cannot be designated and/or documented on a retrospective basis.

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Question 13

True/False

An example of a foreign currency swap is when a loan denominated in one currency is swapped for a loan denominated in another currency.

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False

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Question 14

True/False

If an organisation enters a foreign currency swap it will effectively insulate itself against the effects of changes in the spot rates.

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True

False

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Question 15

Multiple Choice

A foreign currency transaction shall be recorded on initial recognition in the:

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presentation currency.

local currency.

foreign currency.

functional currency.

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Question 16

Multiple Choice

There are two broad categories of foreign currency issues that arise in financial reporting.They are:

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reporting purchase price parity and reporting foreign interest rate adjustments.

accounting for foreign currency debt and offshore financing.

accounting for foreign currency transactions and translating the accounts of foreign subsidiaries.

accounting for foreign currencies using the forex buy rate and the forex sell rate.

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Question 17

Multiple Choice

The exchange rate for a currency depends on many factors including:

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the price of McDonald's hamburgers in each country.

the rate at which the currency is pegged at relative to the other currency of interest.

the price of options on futures of the foreign currency.

the demand for and supply of the currency in the market.

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Question 18

Multiple Choice

The effect of a fall in the exchange rate for British pounds relative to other major world currencies would include:

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People buying goods overseas with British pounds would find the goods relatively cheaper than before.

The cost of importing goods from overseas would increase.

The cost of offshore debt would increase.

The cost of importing goods from overseas would increase and the cost of offshore debt would increase.

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Question 19

Multiple Choice

The effect of an increase in the exchange rate for British pounds relative to other major world currencies would include:

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Offshore debt would become more expensive.

The cost of importing goods from overseas would increase.

People buying goods overseas with British pounds would find the goods relatively cheaper than before.

The cost of British exports for overseas buyers would decrease.

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Question 20

Multiple Choice

The Big Mac index is:

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an indicator of the economic wealth of a country, applied to a capacity to purchase Big Macs with the average wage.

a measure of purchasing power parity applied to a 'real' product that is essentially identical and available around the world.

a measure of interest rate parity such that the exchange rates between countries can be compared to assess whether or not interest rates are too high or low in a particular country relative to other major currencies in the world and a measure of purchasing power parity applied to a 'real' product that is essentially identical and available around the world.

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