Chapter 13

Which of the following components of a consolidated group can never be considered an operating segment:
1. A business line of the group
2. A geographical area of activity
3. The legal department of the group
4. A subsidiary
5. Start-up operations
Which of the following qualifies as a reportable operating segment?
1. The corporate headquarters, which oversees the entire company
2. The North American segment, whose assets are 12% of the assets of all segments and management reports to the chief operating officer
3. The South American segment, whose results of operations are reported directly to the chief operating officer, and has 5% of the company's assets, 9% of revenues, and 8% of the profits
4. The Eastern Europe segment, which reports its results directly to the manager of the European division, and has 20% of the company's assets, 12% of revenues, and 11% of profits
In preparing consolidated financial statements of a South African parent company with a foreign subsidiary, the foreign subsidiary’s functional currency is determined to be the currency:
1. In which the subsidiary maintains its accounting records
2. Of the country in which the subsidiary is located
3. Of the country in which the parent is located
4. Of the environment in which the subsidiary primarily generates and expends cash
Gamma Ltd., a 100% British subsidiary of a U.S. parent company, reports its financial statements in £ (its functional currency). A local newspaper published the following U.S. exchange rates to the British pound at year-end:
- Current rate: $1.50
- Historical rate (at acquisition date): $1.70
- Average rate: $ 1.55
- Inventory (FIFO): $1.60
Which currency rate should Gamma use to convert its income statement to U.S. dollars at year end?
1. 1.50
2. 1.55
3. 1.60
4. 1.70
Gamma Ltd., a 100% British subsidiary of a U.S. parent company, reports its financial statements in £ (its functional currency). A local newspaper published the following U.S. exchange rates to the British pound at year-end:
- Current rate: $1.50
- Historical rate (at acquisition date): $1.70
- Average rate: $1.55
- Inventory (FIFO): $1.60
Which currency rate should Gamma use to convert its assets to U.S. dollars at year end?
1. 1.50
2. 1.55
3. 1.60
4. 1.70
After several years of trading in the U.S., Bardo Inc. expanded trading in Hong Kong through a subsidiary. The subsidiary is essentially an extension of the parent company’s own business and the directors of the two entities are the same. The functional currency of the subsidiary will be:
1. USD
2. USD or HKD according to management’s preference
3. HKD
4. Impossible to determine
Where a foreign subsidiary functions independently from its parent company, the functional currency of the foreign subsidiary will be:
1. Its domestic currency
2. That of the main group companies
3. Determined using the guidance for determining an entity’s functional currency
4. The presentation currency
The exchange rate on the day of the transaction is called:
1. Spot rate
2. Closing rate
3. Average rate
4. Forward rate
According to the net investment method monetary items will be reported:
1. At the closing rate on the end of the reporting period
2. At the historical rate of the transaction
3. At the average rate for the year
4. At the projected rate at settlement date
According to the temporal method non-monetary items will be reported:
1. At the closing rate on the end of the reporting period
2. At the historical rate of the transaction
3. At the average rate for the year
4. At the average rate of the last month of the reporting period

Chapter 13

Quiz