國(guó)際會(huì)計(jì)學(xué)課后答案

1、國(guó)際會(huì)計(jì)學(xué)課后答案【篇一：國(guó)際會(huì)計(jì)第七版英文版課后答案(第六章)】foreign currency translation discussion questions solutions 1. foreign currency translation is the process of restating a foreign account balance from one currency to another. foreign currency conversion is the process of physically exchanging one currency for anothe

2、r. 2. in the foreign exchange spot market, currencies bought and sold must be delivered immediately,normally within 2 business days. thus a singaporean tourist buying u.s. dollars at the airportbefore boarding a plane for new york would hand over singapore dollars and immediatelyreceive the equivale

3、nt amount in u.s. dollars. the forward market handles agreements toexchange a fixed amount of one currency for another on an agreed date in the future. for example, a french manufacturer exporting goods invoiced in euros to a japanese importer on 60- day credit terms would buy a forward contract to

4、sell yen for euros 2 months in the future.transactions in the swap market involve the simultaneous purchase (or sale) of one currency inthe spot market and the sale (or purchase) of the same currency in the forward market. thus, acanadian investor wishing to take advantage of higher interest rates o

5、n 6-month treasury bills inthe united states would buy u.s. dollars with canadian dollars in the spot market and invest inthe united states. to guard against a fall in the value of the u.s. dollar before maturity (whenthe u.s. dollar proceeds are converted back to canadian dollars), the canadian inv

6、estor wouldsimultaneously enter into a forward contract to sell u.s. dollars for canadian dollars 6 months inthe future at today s forward exchange rate. 3. the question refers to alternative exchange rates that are used to translate foreign financialstatements. the current rate is the exchange rate

7、 at the financial statement date. it is sometimes called the year-end or closing rate. the historical rate is the exchange rate at the timeof the underlying transaction. the average rate is the average of various exchange rates during afiscal period. since the average rate normally is used to transl

8、ate income statement items, it isoften weighted to reflect any seasonal changes in the volume of transactions during the period.translation gains and losses do not occur if exchange rates do not change. however, ifexchange rates change, the use of current and average rates causes translation gains a

9、nd losses.these do not occur when the historical rate is used because the same (constant) rate is used eachperiod. 4. in this example, the mexican affiliate s canadian dollar loan is denominated in canadian dollars.however, because the mexican affiliates functional currency is u.s. dollars, the peso

10、 equivalentof the canadian dollar borrowing would be remeasured in u.s. dollars prior to consolidation. ifthe mexican affiliates functional currency were the peso, the canadian dollar loan would beremeasured in pesos before being translated to u.s. dollars. 5. a transaction gain or loss occurs when

11、a foreign currency transaction, e.g., a foreign currencyborrowing, is settled at a different exchange rate than that which prevailed when the transactionwas originally incurred. in this case there is an exchange of one currency for another. a translation gain or loss, on the other hand, is simply th

12、e result of a restatement process. there isno physical exchange of currencies involved. 6. it is not possible to combine, add, or subtract accounting measurements expressed in different currencies; thus, it is necessary to translate those accounts that are measured or denominated in aforeign currenc

13、y into a single reporting currency. foreign currency translation can involverestatement or remeasurement. in restatement, the local (functional) currency is kept as the unitof measure; that is, the translation process multiplies the financial results and relationships in thelocal currency accounts b

14、y a constant, the current rate. in contrast, remeasurement translateslocal currency results as if the underlying transactions had taken place in the reporting (functional) currency of the parent company; for example, it changes the unit of measure of aforeign subsidiary from its local (foreign) curr

15、ency to the u.s. dollar. 7. major advantages and limitations of each of the major translation methods follow. current rate method advantages: a. retains the initial relationships in the foreign currency statements. b. simple to apply. limitations: a. violates the basic purpose of consolidation, whic

16、h is to present the results of a parent and its subsidiaries as if they were a single entity. b. inconsistent with historical cost. c. presumes that all local assets and liabilities are subject to exchange risk. d. while stockholders equity adjustments shield an mnc s bottom line from translation ga

17、ins and losses, such adjustments could distort certain financial ratios and be confusing. current-noncurrent method advantages: a. distortions in translated gross margins are reduced as inventories and translated at the current rate. b. reported earnings are shielded from the distorting effects of c

18、urrency fluctuations as excess translation gains are deferred and used to offset future translation losses. limitations: a. uses balance sheet classification as basis for translation. b. assumes all current assets are exposed to exchange risk regardless of their form. c. assumes long-term debt is sh

19、eltered from exchange rate risk. monetary-nonmonetary method advantages: a. reflects changes in domestic currency equivalent of long-term debt on a timely basis. limitations: a. assumes that only monetary assets and liabilities are subject to exchange rate risk. b. exchange rate changes distort prof

20、it margins as sales transacted at current prices are matched against cost of sales measured at historical prices. c. uses balance sheet classification as basis for translation. d. nonmonetary items stated at current market values are translated at historical rates. temporal method advantages: a. the

21、oretically valid: compatible with any accounting measurement method.b. has the effect of translating foreign subsidiaries operations as if they were originally transacted in the home currency, which is desirable for foreign operations that are extensions of the parents activities. limitation: a. a c

22、ompany increases its earnings volatility by recognizing translation gains and losses currently. in arguing for one translation method over another, your students should eventually realize that, in the present state of the art, there is probably no one translation method that is appropriate for all c

23、ircumstances in which translations occur and for all purposes that translation serves. it is probably more fruitful to have students identify circumstances in which they think one translation method is more appropriate than another. 8. the current rate method is appropriate when the foreign entity b

24、eing consolidated is largely independent of the parent company. conditions which would justify this methodology is when the foreign affiliate tends to generate and expend cash flows in the local currency, sells a product locally so that its selling price is largely insulated from exchange rate chang

25、es, incurs expenses locally, finances its self locally and does not have very many transactions with the parent company. in contrast, the temporal method seems appropriate in those instances when the foreign affiliates operations are integrally related to the parent company. conditions which would j

26、ustify use of the temporal method are when the foreign affiliate transacts business in the parent currency and remits such cash flows to the parent company, sells a product largely in the parent country and whose selling price is sensitive to exchange rate changes, sources its factor inputs from the

27、 parent company, receives most of its financing from the parent and has a large two way flow of transactions with it. 9. the history of foreign currency translation in the united states suggests that the development of accounting principles does not depend on theoretical considerations so much as on

28、 political, institutional, and economic influences that affect accounting standard setting. it may be morerealistic to recognize that theoretically sound solutions are impossible as long as policy prescriptions are evaluated on practical grounds. without specific choice criteria derived frominvestor

29、 decision models, it is fruitless to argue the conceptual merits of competing accountingtreatments. it is far more productive to admit that foreign currency translation choices are simplyarbitrary. readers of consolidated financial statements should know that the foreign currency translationmethod u

30、sed is one of several alternatives, and this should be disclosed. this approach is moreopen and reduces the chance that readers will draw misleading inferences. 10. foreign inflation, in particular, the differential rate of inflation between the country in which a subsidiary is located and the count

31、ry of its parent determines foreign exchange rates.these rates, in turn, are used to translate foreign currency balances to parent currency. 11. in the united kingdom, financial statements of affiliates domiciled in hyperinflationary environments must first be adjusted to current price levels and then translated using the current rate; in the united states, the temporal method would be employed. the second part of this question is designed to get students from abroad to find out what com