When Would the Balance Sheet Exposure Arising from the Current

question 43

Multiple Choice

When would the balance sheet exposure arising from the current rate method become realized?

• A) It is realized once the financial statements of the foreign operation and the parent are consolidated.
• B) It is realized any time the historical exchange rate is different from the spot rate at the balance sheet date.
• C) It is realized when the foreign operation is sold at book value and the proceeds are converted into parent company currency.
• D) It can never be realized because it is only the result of the choice of accounting methods and does not reflect real exposure.

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Definitions:

Activity-based Costing

A costing method that assigns overhead and indirect costs to specific activities, providing more accurate product costing.

Idle Capacity

The unused portion of a company's production or service potential, often resulting in inefficiencies and increased costs.

Activity-Based Costing

A costing method that assigns costs to products or services based on the activities they require, aiming to provide more accurate product cost information.

Machine-Hours

A unit of measure representing the operating time of a machine, used in allocating costs to products based on machine usage.