a
Introduction: Translation adjustment is the method used to convert the local currency into the parents’ functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the
The strengthening or weakening of currency in 20X6 and 20X7 by presenting both direct and indirect exchange rate for the rupees for the given dates.
a
Answer to Problem 12.13E
The dollar strengthened both during 20X6 and 20X7
Explanation of Solution
| Direct $/R 1 | Indirect R/$1 | |
| January 1, 20X6 | $.03333 = R 1 | R 30 = $1 |
| December 31, 20X6 | $.02857 = R 1 | R 35 = $1 |
| December 31, 20X7 | $.025 = R 1 | R40 = $1 |
The dollar appreciated against rupees during 20X6 because the amount of rupees required to buy one U.S dollar at the end of the year is R35 which is greater than the amount of rupees required to buy one dollar at the beginning of the year that is R 30. The dollar value continued its upward trend during the year 20X7 to R40.
b
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
The subsidiary’s translated balance sheet of December 31, 20X6 assuming rupee is the subsidiary’s functional currency.
b
Answer to Problem 12.13E
The dollar strengthened both during 20X6 and 20X7
Explanation of Solution
Translated balance sheet for December 31, 20X6
| Details | Subsidiary balancesIn Rupees | Direct exchange rate | Translated balances$ |
| Cash | 100,000 | $.02857 | $2,857 |
| Receivables | 450,000 | $.02857 | 12,857 |
| Inventory | 680,000 | $.02857 | 19,428 |
| Fixed assets | 1,000,000 | $.02857 | 28,570 |
| Total assets | 2,230,000 | 63,712 | |
| Accumulated other comprehensive income: | |||
| Translation adjustment debit | 2,903 | ||
| Total Assets | 66,615 | ||
| Current payables | 260,000 | $.02857 | 7,428 |
| Long term debts | 1,250,000 | $.02857 | 35,713 |
| Common stock | 500,000 | $.03333 | 16,665 |
| 220,000 | $03095 | 6,809 | |
| Total Liabilities and Equity | 2,230,000 | 66,615 |
Exchange rate for retained earnings will be average of beginning and ending exchange rate
Working note: Proof of translation adjustment
| Details | In Rupees | translation rate | $ |
| Net assets 1/1/X6 | 500,000 | $.03333 | 16,665 |
| Adjustment for changes in net assets during year | |||
| Net income | 220,000 | $.03095 | 6,809 |
| Net assets translated at: | |||
| Rates during the year | 23,474 | ||
| Rates at end of the year | 720,000 | $.02857 | (20,570) |
| Change in translation adjustment during year | 2,904 |
c
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
The subsidiary translated balance sheet as of December 31, 20X7 assuming the rupee is the subsidiary functional currency
c
Answer to Problem 12.13E
Balance sheet total after translation adjustment $61,885
Explanation of Solution
| Details | Subsidiary balancesIn Rupees | Direct exchange rate | Translated balances$ |
| Cash | 80,000 | $.025 | $2,000 |
| Receivables | 550,000 | $.025 | 13,750 |
| Inventory | 720,000 | $.025 | 18,000 |
| Fixed assets | 900,000 | $.025 | 22,500 |
| Total assets | 2,250,000 | 56,250 | |
| Accumulated other comprehensive income: | |||
| Translation adjustment debit | 5,635 | ||
| Total Assets | 61,885 | ||
| Current payables | 340,000 | $.025 | 8,500 |
| Long term debts | 1,100,000 | $.025 | 27,500 |
| Common stock | 500,000 | $.03333 | 16,665 |
| Retained earnings | 310,000 | A | 6,809 |
| Total Liabilities and Equity | 2,250,000 | 61,885 |
Determination of retained earnings
| Retained earnings December 31, 20X6 | $6,809 |
| 2,411 | |
| $9,220 |
Working note: Proof of translation adjustment
| Details | In Rupees | translation rate | $ |
| Net assets 1/1/X6 | 720,000 | $.02857 | 20,570 |
| Adjustment for changes in net assets during year | |||
| Net income | 90,000 | $.02679 | 2,411 |
| Net assets translated at: | |||
| Rates during the year | 22,981 | ||
| Rates at end of the year | 810,000 | $.025 | (20,250) |
| Income translation | 2,731 | ||
| Translation adjustment 1/1/X7 | 2,904 | ||
| Accumulated other comprehensive | |||
| Translation adjustment 12.31.X7 | 5,635 |
d
Introduction: Translation adjustment is the method used to convert the local currency into the parents' functional currency when the local currency is the foreign entity’s functional currency. The current rate is used to translate the financial statements that are the exchange rate on the balance sheet date. The average rate is used to translate revenue and expenses as it is assumed that occurs uniformly over the period. Any gain or loss on account of translation adjustment is recognized in the comprehensive income statement.
The comprehensive income for 20X7 would include as a result of the translation
d
Answer to Problem 12.13E
The comprehensive income for 20X7 would include as a result of the translation $2,731
Explanation of Solution
Income to be reported in 20X7
| Details | In Rupees | translation rate | $ |
| Net assets 1/1/X6 | 720,000 | $.02857 | 20,570 |
| Adjustment for changes in net assets during year | |||
| Net income | 90,000 | $.02679 | 2,411 |
| Net assets translated at: | |||
| Rates during the year | 22,981 | ||
| Rates at end of the year | 810,000 | $.025 | (20,250) |
| Income translation | 2,731 |
Want to see more full solutions like this?
Chapter 12 Solutions
Advanced Financial Accounting
- Hansabenarrow_forwardRequired information Newberry, Inc., whose reporting currency is the U.S. dollar ($), has a subsidiary in Argentina, whose functional currency also is the $. The subsidiary acquires inventory on credit on November 1, 2017, for 210,000 pesos that is sold on January 17, 2018, for 243,000 pesos. The subsidiary pays for the inventory on January 31, 2018. Currency exchange rates are as follows: $0.54 =1 peso November 1, 2017 December 31, 2017 January 17, 2018 January 31, 2018 0.55 =1 0.56 =1 %3D 0.57 =1arrow_forwardCertain balance sheet accounts of a foreign subsidiary of Paul Inc. at December 31, year 1, have been translated in US dollars as follows: Translated at Current Rates Historical Rates Note recievable, long term P 240,000 P 200,000 Prepaid rent 85,000 80,000 Patent 150,000 170,000 P 475,000 P 450,000 The subsidiary's functional currency is…arrow_forward
- Translate into dollars the balance sheet of Nevada Leather Goods' Spanish subsidiary. When Nevada Leather Goods acquired the foreign subsidiary, a euro was worth $1.07. The current exchange rate is $1.36. During the period when retained earnings were earned, the average exchange rate was $1.18 per euro. E (Click the icon to view the financial data.) Requirement During the period covered by this situation, which currency was stronger, the dollar or the euro? 870,000 Assets Liabilities 560,000 Shareholders' equity Share capital 75,000 Retained earnings 235,000 Foreign-currency translation adjustment 870,000 During this period, the was stronger than the V The V produced the V translation adjustment. Choose from any list or enter any number in the input fields and then continue to the next question.arrow_forwardExample 1: Kennedy Inc. is a US based MNC that conduct a part of its business in Oman. Its Omani sales are denominated in Omani Riyal. Its income statement from Oman business at the year-end is shown below: Income Statement Particulars Amount in OMR Sales 25000 Less: Cost of goods sold 8000 Gross Profit 17000 Operating expenses 11000 EBIT 6000 Interest Expenses 2000 EBT 4000 Exchange Rates: (a) The spot exchange rate = OMR 0.3850/USD (b) The average exchange rate = OMR 0.3780/USD (c) The historical exchange rate = OMR 0.3820/USD Requirement: Translate income statement into reporting currency by using the current rate method and temporal method.arrow_forward2. Assume that a FARFAR subsidiary of the U.S. MNC operates in a highly inflationary economy and keeps its balance sheet in FFAD currency. The U.S. dollar is the reporting currency of the U.S. MNC. The following table presents the balance sheet in FAAD. The subsidiary is at the end of its first year of operation. The historical exchange rate is FAAD1.60/$1.00 and the most recent exchange rate is FAAD2.00/$1.00 while the weighted average exchange rate is FAAD1.80/$1.00. The current price index is 105 at the acquisition date while the price index is 175 at the end of the reporting period. Fill out the missing entries for this FARFAR subsidiary under FASB52 of the GAAP and IAS 29 of the IFRS. (Hint: Inventory is carried at the current value on the book) Balance Sheet 1Cash Inventory (current Value = FAAD1,800) 3Net fixed assets 2 4Total Assets 5Current liabilities 6Long-term debt 7Common stock 8Retained earnings 9Total L&E Local Currency FFAD 2,100 FAAD 1,500 FAAD 3,000 FAAD 6,600 FAAD…arrow_forward
- Soley plc, a British company whose presentation currency is GBP, has a subsidiary, Westside Ltd, operating in the US. At the reporting date 31 December 20X3, Westside Ltd has 150 million USD of total assets. Exchange rate information as follows: On 31 December 20X3: 1 GBP = 1.2 USD Average rate for 20X3: 1 GBP = 1.25 USD What is Westside Ltd's total assets used for the purpose of preparing the Group's consolidated financial statements? a. 120 million GBP b. 180 million GBP c. 150 million USD d. 125 million GBP e. 187.5 million GBParrow_forwardCertain balance sheet accounts of a foreign subsidiary of Orchid Company have been stated in U.S. dollars as follows: Stated at Current Rates Historical Rates Accounts receivable, current $ 155,000 $ 175,000 Accounts receivable, long term 108,000 115,000 Land 54,000 59,000 Patents 83,000 88,000 $ 400,000 $ 437,000 This subsidiary’s functional currency is the U.S. dollar. What total should Orchid’s balance sheet include for the preceding items?arrow_forwardCertain balance sheet accounts of a foreign subsidiary of Orchid Company have been stated in U.S. dollars as follows: Stated at Current Rates Historical Rates Accounts receivable, current $ 276,000 $ 296,000 Accounts receivable, long term 128,000 135,000 Land 64,000 67,000 Patents 92,000 97,000 $ 560,000 $ 595,000 This subsidiary’s functional currency is the U.S. dollar. What total should Orchid’s balance sheet include for the preceding items? a. $560,000. b. $575,000. c. $565,000. d. $568,000.arrow_forward
- unc.5arrow_forwardCertain balance sheet accounts of a foreign subsidiary of Orchid Company have been stated in U.S. dollars as follows: Current Rates Historical Rates Accounts receivable, current $ 235,000 $255,000 Accounts receivable, long term 142,000 149,000 land 71,000 74,000 Patents 101,000 106,000 $ 549,000 $ 584,000 1. This subsidiary’s functional currency is a foreign currency. What total should Orchid’s balance sheet include for the preceding items?$557,000.$554,000.$564,000.$549,000. 2. This subsidiary’s functional currency is the U.S. dollar. What total should Orchid’s balance sheet include for the preceding items?$554,000.$557,000.$564,000.$549,000arrow_forwardi need the answer quicklyarrow_forward
Fundamentals Of Financial Management, Concise Edi...FinanceISBN:9781337902571Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning