B4002 - Chapter 11

Consolidated Financial Statements

Financial statements that are prepared when one entity has control over another entity.

Functional Currency

The currency in which the foreign operation conducts its business activities.

Presentation Currency

The currency in which the parent company's financial statements are presented.

Translation Exposure

The risk of loss or gain that occurs as a result of changes in foreign exchange rates.

Accounting Exposure

The risk of loss or gain that occurs when financial statement items are translated at the closing rate or forward rate.

Economic Exposure

The risk that the economic value of the entity could decrease due to future events, such as changes in foreign exchange rates.

Translation Adjustment

The adjustment made to the consolidated financial statements to account for the translation of foreign currency denominated financial statements.

Transaction Exposure

The foreign exchange loss or gain that can occur between the time of entering a transaction involving a foreign currency and the time of settling it in cash.

Foreign Operation

An entity that is based or conducted in a country or currency other than that of the reporting entity.

Functional Currency Translation Method (FCT)

A method used to translate the financial statements of a foreign operation from its recording currency to its functional currency.

Presentation Currency Translation Method (PCT)

A method used to translate the financial statements of a foreign operation from its functional currency to a different presentation currency.

Intercompany Profits

Profits that need to be eliminated in the consolidation process to avoid double counting.

Lower of Cost and Net Realizable Value (LCNRV)

A principle that requires inventory to be valued at the lower of its historical cost in Canadian dollars or its net realizable value in Canadian dollars.

Cash Flow Statement

A financial statement that shows the inflows and outflows of cash and cash equivalents during a specific period.

Tax Effects of Exchange Adjustments

The tax implications of exchange differences arising from translating the financial statements of a foreign operation into Canadian dollars.

Disclosure Requirements

The information that must be disclosed in the financial statements regarding the effects of changes in foreign exchange rates and the use of different currencies.

Profitability Ratios

Ratios that measure a company's ability to generate profits.

Liquidity Ratios

Ratios that measure a company's ability to meet its short-term obligations.

Solvency Ratios

Ratios that measure a company's ability to meet its long-term obligations.