Question

QUESTION 1

1. Which of the following statements is incorrect?

   		Not many companies in Australia have operations in both Australia and overseas locations.
   		The financial statements of an entity may be recorded in a foreign currency and translated into Australian dollars for the purpose of combining those statements with the financial statements of a related Australian company.
   		The relevant accounting standard applied in translating financial statements into another currency is AASB 121/IAS 21 The Effects of Changes in Foreign Exchange Rates.
   		The financial statements of an Australian company may be prepared in Australian dollars and translated into a foreign currency for presentation purposes.

0.2 points   

QUESTION 2

1. Which of the following is an additional question to be asked in determining whether a foreign entity’s functional currency is the same as that of the reporting entity?

   		All of the above.
   		Are the foreign operation’s activities carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy?
   		Do the cash flows from the foreign operation’s activities directly affect the reporting entity’s cash flows?
   		Are the transactions with the reporting entity a high or low proportion of the foreign operation’s activities?

0.2 points   

QUESTION 3

1. Where profits generated by the foreign operation are retained in the foreign entity and used for its expansion:

   		the foreign operation’s currency is likely to be the functional currency.
   		the reporting entity’s currency is likely to be the functional currency.
   		the reporting entity’s currency is likely to be the presentation currency.
   		the foreign operation’s currency is likely to be the presentation currency.

0.2 points   

QUESTION 4

1. Indicators pointing towards the local overseas currency as the functional currency include:
   
   I. Parent’s cash flows are directly affected on a current basis.
   II. Production costs are determined primarily by local conditions.
   III. Sales prices are primarily responsive to exchange rate changes in the short-term.
   IV. Cash flows are primarily in the local currency and do not affect the parent’s cash flows.

   		I, II and IV only.
   		II and IV only.
   		I, III and IV only.
   		I and III only

0.2 points   

QUESTION 5

1. When translating into the presentation currency, all assets and liabilities are translated using the:

   		average exchange rate for the financial period.
   		exchange rate as at the start of the reporting period.
   		exchange rate applicable when the original transaction was recorded.
   		exchange rate current at the date of the statement of financial position.

Answer 1

Ques 1 The correct answer is A "Not many companies in Australia have operations in both Australia and overseas locations."

Ques 2 The correct answer is A "All of the above"

Ques 3 The correct answer is A " the foreign operation’s currency is likely to be the functional currency"
As the funds are generated and retained in the foreign entity, the foreign operation’s currency is likely to be the functional currency

Ques 4 The correct answer is B "II and IV only"

Ques 5 The correct answer is D "exchange rate current at the date of the statement of financial position"
Assets and liabilties are reported at the rate existing on the closing date of the balance sheet
.