Question :
1. According to AASB 121 The Effects of Changes in : 2102191
1. According to AASB 121 The Effects of Changes in Foreign Exchange Rates, the following statement, ‘the currency that affects the economic wealth of the entity’, provides a definition of?
a. functional currency;
b. local currency;
c. presentation currency;
d. foreign currency.
2. According to AASB 121 The Effects of Changes in Foreign Exchange Rates, the currency in which an entity primarily generates and expends cash is considered to be the:
a. economic currency;
b. domestic currency;
c. presentation currency;
d. functional currency.
The following information relates to question 3 and 4
Aussie Ltd acquired 100% of Sing Sing Ltd (Sing Sing) on 1 July 20X0. The balance sheet of Sing Sing on that date was as follows:
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Balance sheet at 1 July 20X0 |
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S$ |
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S$ |
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Machinery at cost |
280,000 |
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Share capital |
200,000 |
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Investment property |
200,000 |
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General Reserve |
100,000 |
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Receivables |
50,000 |
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Retained earnings |
300,000 |
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Cash |
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70,000 |
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|
600,000 |
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600,000 |
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The balance sheet of Sing Sing as at is as follows:
Balance Sheet as at 30 June 20X1
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S$ |
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S$ |
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Machinery- carrying value |
150,000 |
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Share capital |
200,000 |
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Investment property |
200,000 |
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General Reserve |
100,000 |
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Receivables |
250,000 |
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Retained earnings |
500,000 |
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Cash |
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300,000 |
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Accounts payable |
85,000 |
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Income tax payable |
15,000 |
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900,000 |
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900,000 |
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??Relevant exchange rates are as follows:
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A$ |
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S$ |
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1 July 20X0 |
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1.00 |
= |
1.25 |
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30 June 20X1 |
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1.00 |
= |
1.28 |
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Average 20X0-X1 |
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1.00 |
= |
1.18 |
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3. If the local currency of Sing Sing is Singapore dollars and the functional currency is Australian dollars the total assets of S$900,000 would translate into Australian dollars as:
a. $703 125
b. $709 688
c. $1 141 500
d. $1 152 000
4. If the functional currency of Sing Sing is Singapore dollars and the presentation currency is Australian dollars the total assets of S$900 000 would translate into Australian dollars as:
a. $703 125
b. $709 688
c. $1 141 500
d. $1 152 000
5. Indicators pointing towards the local overseas currency as the functional currency include, that the:
I. Parent’s cash flows are directly affected on a current basis.
II. Cash flows are primarily in the local currency and do not affect the parent’s cash flows.
III. Sales prices are primarily responsive to exchange rate changes in the short-term.
IV. Production costs are determined primarily by local conditions.
a. I and III only;
b. II and IV only;
c. I, III and IV only;
d. I, II and IV only.
