International Accounting Exam 1
Questions and Answers 100% Solved
Foreign exchange risk - ✔✔Foreign exchange risk (fx risk) refers to doing a
transaction in a different currency other than your own, and by the time
cash is received the value of the currency may have changed.
how to protect against fx risk - ✔✔Companies usually try and do
transactions in their domestic currency when possible, it all depends on
negotiating power. The best way to protect against fx risk is to enter a
hedge, which is a protection against fx risk.
Foreign direct investment; Greenfield investment - ✔✔Refers to companies
investing in foreign companies. Companies can invest in foreign countries
by purchasing an existing company or doing a greenfield investment in
which operations start fresh off. Acquisitions are much faster than
greenfield investments
Foreign currency translation - ✔✔Refers to converting internal numbers
from foreign operation to one's domestic currency. i.e if you have
operations in Japan, then convert yen to dollars to follow GAAP.
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,Foreign currency transaction - ✔✔Refers to transactions being dealt with a
counter party denominated in a foreign currency
Transfer pricing and dividend payments - ✔✔Transfer pricing occurs when
a company sells to a sister company. The goal is to minimize taxation
within company transaction. When a company sends money to a parent
company it's called repatriation not dividend.
EU members and Euro users - ✔✔Most countries in Europe are EU
members, except UK, Switzerland, and Russia.
Most countries in Europe use the Euro, except Denmark and Sweden.
Advantages of international standardization of accounting rules - ✔✔It's
efficient for companies and less costly to keep in their books, it benefits
investors as they don't need to learn multiple accounting standards.
disadvantages of international standardization of accounting rules -
✔✔High costs of training employees to understand the international
standards and some people do not like to change to IFRS, because they
feel their accounting standards are better.
Cooper Grant is the president of Acme Brush of Brazil, the wholly-owned
Brazilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grant's
compensation package consists of a combination of salary and bonus. His
2
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
, annual bonus is calculated as a predetermined percentage of the pretax
annual income earned by Acme Brush of Brazil. A condensed income
statement for Acme Brush of Brazil for the most recent year is as follows
(amounts in thousands of Brazilian reals [BRL]):
Sales BRL 10,000
Expenses 9,500
Pretax income BRL 500
After translating the Brazilian real income statement into U.S. dollars, the
condensed income statement for Acme Brush of Brazil appears as follows
(amounts in thousands of U.S. dollars [US$]):
Sales US$3,000
Expenses 3,300
Pretax income (loss) US$(300)
Required:
a.Explain how Acme Brush of Brazil's pretax income (in BRL) became a
U.S.-dollar pretax loss.
b.Discuss whether Cooper Grant should be paid a b - ✔✔a. The BRL pre-
tax income becomes a USD pre-tax loss because Sales and Expenses are
translated at different exchange rates. Specifically, Sales are translated at
an exchange rate of USD 0.30 per 1 BRL [USD 3,000 / BRL 10,000] and
3
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
Questions and Answers 100% Solved
Foreign exchange risk - ✔✔Foreign exchange risk (fx risk) refers to doing a
transaction in a different currency other than your own, and by the time
cash is received the value of the currency may have changed.
how to protect against fx risk - ✔✔Companies usually try and do
transactions in their domestic currency when possible, it all depends on
negotiating power. The best way to protect against fx risk is to enter a
hedge, which is a protection against fx risk.
Foreign direct investment; Greenfield investment - ✔✔Refers to companies
investing in foreign companies. Companies can invest in foreign countries
by purchasing an existing company or doing a greenfield investment in
which operations start fresh off. Acquisitions are much faster than
greenfield investments
Foreign currency translation - ✔✔Refers to converting internal numbers
from foreign operation to one's domestic currency. i.e if you have
operations in Japan, then convert yen to dollars to follow GAAP.
1
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
,Foreign currency transaction - ✔✔Refers to transactions being dealt with a
counter party denominated in a foreign currency
Transfer pricing and dividend payments - ✔✔Transfer pricing occurs when
a company sells to a sister company. The goal is to minimize taxation
within company transaction. When a company sends money to a parent
company it's called repatriation not dividend.
EU members and Euro users - ✔✔Most countries in Europe are EU
members, except UK, Switzerland, and Russia.
Most countries in Europe use the Euro, except Denmark and Sweden.
Advantages of international standardization of accounting rules - ✔✔It's
efficient for companies and less costly to keep in their books, it benefits
investors as they don't need to learn multiple accounting standards.
disadvantages of international standardization of accounting rules -
✔✔High costs of training employees to understand the international
standards and some people do not like to change to IFRS, because they
feel their accounting standards are better.
Cooper Grant is the president of Acme Brush of Brazil, the wholly-owned
Brazilian subsidiary of U.S.-based Acme Brush Inc. Cooper Grant's
compensation package consists of a combination of salary and bonus. His
2
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
, annual bonus is calculated as a predetermined percentage of the pretax
annual income earned by Acme Brush of Brazil. A condensed income
statement for Acme Brush of Brazil for the most recent year is as follows
(amounts in thousands of Brazilian reals [BRL]):
Sales BRL 10,000
Expenses 9,500
Pretax income BRL 500
After translating the Brazilian real income statement into U.S. dollars, the
condensed income statement for Acme Brush of Brazil appears as follows
(amounts in thousands of U.S. dollars [US$]):
Sales US$3,000
Expenses 3,300
Pretax income (loss) US$(300)
Required:
a.Explain how Acme Brush of Brazil's pretax income (in BRL) became a
U.S.-dollar pretax loss.
b.Discuss whether Cooper Grant should be paid a b - ✔✔a. The BRL pre-
tax income becomes a USD pre-tax loss because Sales and Expenses are
translated at different exchange rates. Specifically, Sales are translated at
an exchange rate of USD 0.30 per 1 BRL [USD 3,000 / BRL 10,000] and
3
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
