Name : Safira Yafiq Khairani

Nim : 1802112130

Mid Term Test Advance Financial Accounting

I. Chapter 11 : Multinational Accounting: Foreign Currency Transactions And

Financial Instruments

A. Definition

Foreign business activity is entity which operates in another country or uses

a currency other than the currency of the reporting entity.

The exchange rate is ratio used by the exchange for two currencies and the closing
rate is the spot rate at the end of the reporting period and the spot rate is used for
immediate realization.

Foreign currency is a currency other than the functional currency of an entity so the
functional currency is the primary currency in which the entity operates.

Foreign currency transactions can we defined as transactions which using foreign

currencies, in simple transaction : buy or sell product or services that priced in
foreign currencies next is borrow or lend funds when the amount using foreign
currency; and others transaction.

B. Valuation and Recording

The Measurement of financial assets or liabilities can be divided into two
part, first the measurement at beginning recognition and second is measurement at
ending period . In general the measurement is using the fair value, but when the fair
value cannot be recovered, we can use the cost or carrying value which financial
assets and liabilities are initially recognized at fair value on due date of the
transaction. At the time of beginning recognition, foreign currency transaction
recorded in the functional currency that use the spot exchange rate between the
functional currency at the foreign currency on due date transaction

C. Reporting
There are two methods to report financial statements in case the currencies
different from the parent, the first is the closing/current rate method and the
second is the temporal method but IFRS and PSAK only mention one , just the
current rate method
  Closing / current rate method
The closing / current rate method usually known as translation method is method
that translates financial statements from the functional currency to the presentation
currency. In exampke This method is used by a stand-alone company, which records
its books in the functional currency, but presents its financial statements in a
currency other than their functional currency.

 Temporal method commonly

The temporal method also known as remeasurement method is a method of
translating foreign currency into functional currency. In example this method can be
use by foreign business activities which records books in the local currency but the
functional currency is the same as the currency of their parent company

D. Case Problem, Solution and Explanation

Cupapi Company is a Electronic company and has been around since 1998. They
have sells many products and have many transaction related their business. On 15
December 2018 Cupapi Company sells electronic device to Ross Company which is
Malaysian Company at RM20.000 at spot kurs Rp.760. and then Cupapi Company
closing the ledger On january 31 2018 when the spot kurs is Rp.765. Ross Company
paid their payable on January 20 2019 at spot kurs Rp.770. Cupapi Company do the
convert from Ringgit to Rupiah on January 25 2019 at spot kurs Rp. 772,5 .

Instruction : Make the Journal for each transaction!

Answer :

 15 December 2018 :

Accounts receivable Rp. 15,200,000

Sales Rp. 15,200,000

Explanation : To record Malaysian company sales

= (20,000 Ringgit X Rp 760)

 31 December 2018

Accounts receivable Rp. 100,000

Currency exchange profit Rp. 100,000

 Explanation : To adjust the account receivables at year-end

= (20,000 ringgit x (Rp765 - Rp760)

 20 January 2019

Cash Rp 15.400.000

Accounts receivable Rp. 15,300,000

Currency exchange profit Rp. 100,000

Explanation: To take notes the repayment of the debt by a Malaysian company

= (20,000 ringgit x Rp770)

and to recognizing the gain from the currency exchange for 2019

= 20,000 ringgit x (Rp 770-Rp 765)

 25 January 2019

Cash Rp. 15,450,000

Currency exchange profit Rp. 50,000

Cash Rp. 15,400,000

Explanation : To convert 20,000 ringgit to Rupiah

= (20,000 ringgit x Rp772.5)

II. Chapter 12 : Multinational Accounting: Translation Of Foreign Entity

Statements

A. Definition

Foreign currency translation is method used by an international business to

translates the results of their foreign subsidiaries into domestic currency terms so it
can be recorded in the books. If we have a business which operates in other
countries, we will use different currencies in your business operations. But in
accounting, financial statements have to recorded in a single currency. That’s why
the translation is important because with translation we can easily read and analyze
the financial statement if we used same currency. In example Safira have a company
 wich headquarters in the US but have operate in Indonesia, so we must translate the
rupiah into US dollar.

B. Valuation & Recording

The step of foreign currency translation can be done through :

First is , by determine the functional currency of the foreign entity. In

this part the business determine the functional currency for their reporting business or
entity can choose the currency of the country of the headquarters located or where the
business are operate.

Second is, remeasure the financial statements of the foreign entity into the
functional currency , in this part we ensure all our financial statements have use the
reporting currency. And all income transactions must be translated by rate which
existed when the transaction occurred.

Last is record gains and losses on the translation of currencies. We record the
The gains and losses arising from foreign currency transactions which have record and
translatein same rate and result in transactions at later date with different rate in the
equity section of the balance sheet.

C. Reporting

Businesses with operations related to international transaction translate their

transactions such as acquisition of assets or purchase of services into their functional
currency. With foreign exchange fluctuations, the value of these assets and liabilities are
also subject to variations. Since exchange rates are constantly fluctuating, it can cause
difficulty while accounting for foreign currency translations, business can choose
method to report , there are 3 method that can be used :

- Current rate method : by using this method of translationwe can translate most
items of the financial statements at the current exchange rate
- Temporal rate method :  this method used to adjust income-generating assets on the
balance sheet and related income statement items using historical exchange .
- Monetary and non monetary translation method : this used when the foreign
operations are highly integrated with the parent company.
 D. Case Problem, Solution and Explanation

Pay attention to these following transactions occur :

 On January 1, Kai invested cash in the company he founded, namely BF Company,

which is engaged in shipping services for IDR 200,000,000 when the exchange rate
is USD 1 = IDR 10,000.

 On 9/1 Purchased a Car for business transportation of IDR 15,000,000 when the
exchange rate is USD 1 = IDR 10,000. the vehicle will be depreciated at a rate of 10%
per annum.

 Next on 12/1 the delivery service is completed for USD 10,000, when the exchange
rate is USD 1 = IDR 10,200 for which payment is received 1 week later.

 And then on 15/1 Received payment for delivery service on 12/1 at the rate of USD
1 = IDR 10,100.

 17/1 Office equipment purchased on account USD 800 at an exchange rate of USD 1
= IDR 10,100 paid 50% cash.

 24/1 Paid 50% of the remaining credit on (17/1) at an exchange rate of USD 1 = IDR
10,100

This translation uses the translation concept with an exchange rate of USD 1 = IDR
10,000, then the total value of the account is shared with that exchange rate.

Instruction : make a general journal for the above transactions!

Answer :

January 1 :

Cash 200.000.000

Capital Stock 200.000.000

January 9 :

Car 15.000.000

Cash 15.000.000
January 12 :

A/R 102.000.000

Earnings fee 102.000.000

Explanation : USD 1= Rp 10.200 x USD 10.000  = Rp 102.000.000

January 15 :

Cash 101.000.000

Currency exchange loss 1.000.000

A/R 102.000.000

Explanation : USD 1= Rp 10.100 x USD 10.000  = Rp 101.000.000

January 17 :

Equipment 8.080.000

Acc. Payable 4.040.000

Cash 4.040.000

Explanation :  USD1= Rp 10.100 x USD 800  = Rp     8.080.000

Cash paid 50% = Rp 10.100 x USD 800 x 50%  = Rp     4.040.000

January 24 :

Acc. Payable 4.040.000

Cash 4.040.000

Explanation : USD1= Rp 10.100 x USD 800 x 50%  = Rp     4.040.000

 III. Question Chapter 12

Q12-1 : a. Local currency unit : is a currency which used in a locality in a country.

b. Recording Currency : is currency which use to record the transaction or
events. It can be used local currency or also others currency .
c. Reporting Currency : is currency used by an entity's financial statements or
other financial documents which they reported

Q12-2 : The factors used to determine functional curreny are :

 The currency which most influences the selling price of goods and services

 The currency of a country which have competitive power and regulations

largely determine the selling price of an entity's goods and services
 The currency which most influences the cost of labor, raw materials, and
other costs of procuring goods or services

Q12-3: Harmonization means standardizing accounting principles that are used around
the world. in the U.S. they do not allow the company to revaluate its own assets
because of the effects of inflation. however, some countries allow this
revaluation and subsequent depreciation of the revaluation.

The differences in accounting principles from country to country make it difficult

to compare business entities to business in different countries. Harmonizing
accounting principles around the world will eliminate many problems in
combining and consolidating US corporate multinational entities with
international investments and then you can be sure that basically the same
accounting principles are being applied.

With harmonizing and use same principle, the income, profits and investment in
this foreign investment can be effectively compared and contrasted.

Q12-4: if local currency is the foreign entity's functional currency, we used

translation method to convert the foreign entity's financial statements to
rupiah in the the parent company's reporting currency. The translation
method uses current exchange rate for converting all assets and liabilities.
The appropriate historical exchange rate is used to convert the Australian
entity's stockholders' equity accounts.and for convert the Australian entity's
income statement accounts so we used weighted average exchange rate.
Q12-5 : by remeasurement we requires the use of the current exchange rate to
convert all monetary assets and liabilities. The historical exchange rate is
used to convert nonmonetary assets and the stockholders' equity accounts.

Q12-6 : The translation adjustments can make the debit and credit items equal in the
translated trial balance. The parent company records its share of the
translation adjustment in the adjusting entry. and a component of other
comprehensive income in the Statement of Comprehensive Income is
reported based on the change during the period in the translation
adjustment

IV. Bonuses Case

1. Bain Corp
Journal Entries

- 1 Sept 2011: No entries, because there is no prepaid in this transaction

- 15 Oct 2011

Account Receivable € 420.000

Sales € 420.000

Explanation : to record the goods by Bain Corp so we used euro as the

currency

- 16 Nov 2011

Foreign Currency Units € 415.000

Account receivable € 415.000

Explanation : to record payment from foreign customer.

- 31 Dec 2011
Foreign Transaction Loss € 5000

Accounting Receivable € 5000

Explanation : (420.000 – 415.000 = 5000) we loss because the currency changes

so we make adjusting entries in ending period
2. Yumi Corporation
Journal Entries

- 22 Sept 2011
Inventory € 12.000

Account Payable € 12.000

Explanation : to record a purchase of merchandise, using euros

- March 20, 2011

Account Payable € 13.000

Foreign Currency Units € 13.000

Adjusting Entries for :

- December 31, 2011
Foreign Transaction Loss € 400

Account Payable € 400

Explanation : The currency is 1.24. So (1.20 – 1.24) x 10.000 = 400

- March 20, 2011

Foreign Transaction Loss € 600

Account Payable € 600

= resulted from 10.000 (1.24 – 1.30)=600