Multiple choice  LO2, 3, 4 Select the best answer for each of the following items. 1. The account balances of a foreign subsidiary are to be translated from the local currency into the functional currency. The functional currency is:

(a) the currency in which the transactions are recorded by the foreign entity

(b) the Australian dollar

(c) the local currency of the foreign subsidiary in which the records are maintained

(d) the currency of the primary economic environment in which the entity operates. 2. When the functional currency of a foreign subsidiary in Singapore is the Australian dollar (A$), translation gains and losses resulting from translating the financial statements of the Singapore subsidiary into A$ for presentation purposes should be included:

(a) in the statement of profit or loss and other comprehensive income in the period in which they arise

(b) in other comprehensive income and accumulated in equity

(c) as a deferred item in the statement of financial position. 3. In order to translate the financial statements of a foreign subsidiary into Australian dollars for consolidation of those statements with those of the parent, it is necessary to identify the functional currency. Which of the following factors indicates that the functional currency is the local currency of the foreign subsidiary?

(a) Financing of the subsidiary is primarily from local sources.

(b) Sales contracts are determined in Australian dollars.

(c) There is a high volume of transactions between the two entities.

(d) Profits generated by the foreign subsidiary are remitted to the Australian parent entity. 4. The temporal method is being applied to translate the financial statements of a foreign entity into its functional currency. The historical exchange rate should be used to translate:

(a) plant measured at cost, but not the related depreciation expense and accumulated depreciation

(b) plant measured at cost and the related accumulated depreciation, but not the related depreciation expense

(c) plant measured at cost, the related accumulated depreciation and the related depreciation expense.