CHAPTER 15
MULTINATIONAL OPERATIONS
SOLUTIONS
1. B is correct. IAS 21 requires that the financial statements of the foreign entity first be restated for local inflation using the procedures outlined in IAS 29, “Financial Reporting in Hyperinflationary Economies.” Then, the inflation-restated foreign currency financial statements are translated into the parent’s presentation currency using the current exchange rate. Under U.S. GAAP, the temporal method would be used with no restatement.
2. C is correct. Ruiz expects the euro to appreciate against the hryvnia (UAH) and expects some inflation in the Ukraine. In an inflationary environment, FIFO will generate a higher gross profit than weighted average cost. For either inventory choice, the current rate method will give higher gross profit to the parent company if the subsidiary’s currency is depreciating. Thus, using FIFO and translating using the current rate method will generate a higher gross profit for the parent company, Eurexim SA, than any other combination of choices.
3. B is correct. If the parent’s currency is chosen as the functional currency, the temporal method must be used. Under the temporal method, fixed assets are translated using the rate in effect at the time they were acquired.
4. C is correct. Monetary assets and liabilities such as accounts receivable are translated at current (end-of-period) rates regardless of whether the temporal or current rate method is being used.
5. B is correct. When the foreign currency ...
