Multiple choice questions: Select the best answer for each of the following items.

1. A New Zealand Parent company has a U.S. Subsidiary. Which one of the following statements is incorrect?

1. The functional currency of the U.S. Subsidiary can be NZD or USD.
2. Functional currency is the currency of the primary economic environment in which the entity operates. correct
3. NZ Parent company can use any currency as its presentation currency. Correct
4. The functional currency of the U.S. Subsidiary is the currency in which the transactions are recorded by the U.S. Subsidiary.

2. A New Zealand Parent company has a Vietnamese Subsidiary. NZ Parent company has NZD as its functional currency and presentation currency. The Vietnamese Subsidiary has NZD as its functional currency. Therefore, when translating the Vietnamese Subsidiarys financial statements from Vietnamese Dong to NZD for consolidation purpose, the translation gains or losses should be included:

1. In OCI account and accumulated in equity.
2. In Profit and loss account in Income Statement.
3. In the Balance sheet as an asset or liability.

3. A New Zealand Parent company has a Singapore Subsidiary. To identify the functional currency of the Singapore Subsidiary, which of the following factors indicates that the functional currency is Singapore dollars (S$)?

1. Most of the sales revenue in Singapore dollars.
2. The operating expenses in NZD.
3. Most of the profits generated by the Singapore Subsidiary remitted to NZ Parent company.
4. There is a high volume of transactions between the Parent company and the Singapore Subsidiary.

4. When using Para 39 method to translate a foreign subsidiarys financial statements into NZD to consolidate with NZ parent company, which of the following statements is incorrect?

1. All assets and liabilities are translated at the closing exchange rate at the end of the financial year.
2. Opening inventory in the Income Statement, which is carried forward from last years balance to calculate COGS, is translated at the actual exchange rate on transaction date.
3. Retained earnings at acquisition can be translated using an exchange rate.
4. Foreign currency translation reserve has a balance in NZD only.

5. When using Para 23 method to translate a foreign subsidiarys financial statements into NZD to consolidate with NZ Parent company, the actual exchange rate on transaction date should be used to translate:

1. Plant measured at cost, but not the related depreciation expense and accumulated depreciation.
2. Plant measured at cost and the related accumulated depreciation, but not the related depreciation expense.
3. Plant measured at cost, the related accumulated depreciation and the related depreciation expense.