Some FSA Translation Practice

CFA Level II
#1

ABC is an Australian company with a 100% owned subsidiary, XYZ, located in the country of Loca where the local currency is LC. Substantially all of XYZ’s sales occur in Loca, where it also chooses to purchases all of it assets and supplies. 1. What is the appropriate translation method that ABC should use to translate XYZ’s financial statements under U.S. GAAP? A) All-current method because XYZ’s operating, investing and financing activities are primarily located in Loca. B) All-current method because XYZ’s operating, investing and financing decisions are primarily made by ABC. C) Temporal method because XYZ’s operating, investing and financing activities are primarily located in Loca. D) Temporal method because XYZ’s operating, investing and financing decisions are primarily made by ABC.

#2

If you feel like some more practice…continuing the above… Selected XYZ financial information at Y/E December 31, 2006 and 2007 is as follows: December 31, 2006: - Monetary assets: LC 5,000 - Monetary liabilities: LC 6,000 - SH Equity: LC 10,000 December 31, 2007: - Monetary assets: LC 9,000 - Monetary liabilities: LC 7,000 - SH Equity: LC 12,000 The following exchange rates between AUS$ and LC were observed: - December 31, 2006: AUS$0.50 = LC1.00 - December 31, 2007: AUS$0.45 = LC1.00 - Average for 2007: AUS$0.48 = LC1.00 - Historical rate for SH Equity = AUS$0.60 = LC1.00 2. Assuming the All-Current method is used, what is the total Translation Gain / (Loss) for 2007? A) 560 Gain B) 560 Loss C) 1,560 Gain D) 1,560 Loss 3. Assuming the Temporal method is used, what is the total Translation Gain / Loss for 2007? A) 90 Gain B) 90 Loss C) 40 Gain D) 40 Loss 4. Given the facts presented in the vignette, where will the Translation Gain / Loss be recorded in XYZ’s translated financial statements? A) I/S B) B/S C) Both D) None of A, B or C

#3

A B D B

#4
  1. A 4. B
#5

a b d b

#6

first one is A…get back to you on the second part…

#7

A B D B

#8

part 2 B D B I would love this question on the exam

#9

They won’t be this easy.

#10

Good work. Doubt they’ll lay it out this easy on Saturday…but who knows! I’m sure we’ll see everything from a basic CAPM calc. to crazy things we don’t even remember reading.