Important Questions on Financial Accounting Essay examples

According to IAS 21, functional currency is the currency of the primary economic environment in which the entity operates. The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. Taking this into consideration the functional currency for Sparkle during 2009 would be the US$ based on the given information for 2009 there are more cash transactions using the US$ than NGN. During 2010 under GAAP the functional currency for Sparkle would be the US$. According to FAS 52, A currency in a highly inflationary environment is not considered stable enough to serve as a functional currency and the more stable currency of the reporting parent is to be used instead. During 2010 under IFRSs, using IAS 21, the functional currency for Sparkle would be the US$ for 2010. Although Shine sold its share of the joint venture to Brighten the loan would be transferred and the amount of American currency to NGN would remain the same.

2) Minimize the cost associated with the foreign exchange risk management strategy, i.e. the management and hedging costs

The _____________ is a market for converting the currency of one country into that of another.

3. On the basis of the responses to Question 1 and 2, what are the units of accounting in this arrangement?

Exchange rate gains or losses are brought to account in determining the net profit or loss in the period in which they arise, as are exchange gains or losses relating to cross currency swap transactions on monetary items. Exchange differences relating to hedges of specific transactions in respect of the cost of inventories or other assets, to the extent that they occur before the date of receipt, are deferred and included in the measurement of the transaction. Exchange differences relating to other hedge transactions are brought to account in determining the net profit or loss in the period in which they arise. Foreign controlled entities are considered self-sustaining. Assets and liabilities are translated by applying the rate ruling at balance date and revenue and expense items are translated at the average rate calculated for the period. Exchange rate differences are taken to the foreign currency translation reserve.

b. A parent transfers the net assets of a wholly owned subsidiary into the parent and liquidates the subsidiary. That transaction is a change in legal organization but not a change in the reporting entity.

On the other hand, the peso devaluation will not have that much of a positive effect on Farmington (Antilles) N.V. as the peso depreciates relative to the USD. The result is the subsidiary being negatively impacted as the USD/peso exchange rate is rising, as they convert revenue earned in pesos to USD to deposit into U.S. bank accounts. This facility had almost 4 million MXN receivables at the end of the year. The 1994 average exchange rate is 3.5 MXN/USD, where these 4 million MXNs would equate to approximately 1.14 million USD. When the exchange rate values the devalued peso at 5.0 MXN/USD, these 4 million MXNs are only equal to 0.80 million USDs, showing a loss of more than 300,000 USDs. When the exchange rate changes from 4.0 to 5.0 MXN/USD, we can see the loss the company would experience, and thus the negative impact on this facility.

7. Whether the cash flows of foreign operation directly affect the cash flows of the reporting entity.

* Currency exposure is the extent to which the future cash flows of an enterprise, arising from domestic and foreign currency denominated transactions involving assets and liabilities, and generating revenues and expenses, are susceptible to variations in foreign currency exchange rates.

B. Suppose an American exporter has just received a payment of € 100,000, how many dollars will result upon conversion?

Per contra, the Belgian Francs is in SHORT position: the company will loose money if Belgian Francs appreciate.

1. How profitable is the original sale to Novo once the exchange-rate changes are acknowledged? How has the exchange-rate risk, which affected the value of the order, been managed?

3. The Director of Foreign Exchange hold same opinion with Group Vice President who supported pound sterling funding, but with different reasons. He considered pound sterling as a currency which was as weak as oil price. Borrowing in sterling will create a profit center rather

ABCO Corporation has a parts division in country A. Its assembly division is in country B, which has a higher tax rate than country A. To minimize the corporation's overall income tax, how should ABCO set its transfer prices between its parts and assembly divisions?

Based on your answer to question 2, how would Mesa’s cash flows be affected by the expected exchange rate movements? Explain.