2011 week 10 FOREIGN CURRENCY TRANSACTIONS

642 1 1645 1 1650 1 1650 1 1638 1 1660 1

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Unformatted text preview: t rate £1 = $1.642 £1 = $1.645 £1 = $1.650 £1 = $1.650 £1 = $1.638 £1 = $1.660 £1 = $1.663 £1 = $1.665 £1 = $1.668 Required Prepare all journal entries on the following assumptions: a. no forward contract is taken out to offset the receivable b. a forward contract is taken out to offset the receivable on November 3, 20x7 c. a forward contract is taken out to offset the receivable on November 3, 20x7 but the payment from the customer is received on February 15, 20x8 © CMA Ontario, 2011 3 of 20 CMA Accelerated Program - 2011/2012 Lecture Student Weekly File - Week 10 Problem 17 – Foreign Currency Transactions Sable Company has a calendar year end. On January 1, 20x1, the company borrowed 2,000,000 Euros from a German bank. The loan is to be repaid on January 1, 20x5. Interest of 8% is payable at December 31 of each year. During the first year of the loan, the following exchange rates were in effect: January 1, 20x1 December 31, 20x1 20x1 average rate 1 Euro = $C0.945 1 Euro = $C0.939 1 Euro = $C0.941 Required Prepare the journal entries to record the transactions on 20x1. © CMA Ontario, 2011 4 of 20 CMA Accelerated Program - 2011/2012 Lecture Student Weekly File - Week 10 Financial Accounting - Module 2 (7) Foreign Currency Translation 65 Functional and Presentation Currencies • local currency - the currency in which the foreign operation measures and records its transactions • functional currency - the currency of the primary economic environment in which the entity operates • presentation currency - the currency in which the financial statements of the parent company are presented 66 1 © CMA Ontario, 2011 5 of 20 CMA Accelerated Program - 2011/2012 Lecture Student Weekly File - Week 10 Financial Accounting - Module 2 Foreign Currency Translation • integrated - financially or operationally interdependent with the reporting enterprise such that the exposure to exchange rate changes is similar to the exposure which would exist had the transactions and activities of the foreign operation been undertaken by the reporting enterprise – IFRS: the functional currency is deemed to be the same as the presentation currency – ASPE: the temporal method should be used • self-sustaining foreign operation - independent; exposure to exchange rate changes is limited to the net investment in the foreign operation – IFRS: the functional currency is deemed to be the local currency – ASPE: the current rate method sh...
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This note was uploaded on 01/07/2014 for the course ACCOUNTING 346 taught by Professor William during the Fall '12 term at DeVry Chicago.

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