Chapter 12, Problem 12.22P

Remeasurement and Proof of Remeasurement Gain or Loss

Refer to the information in Problem P12-21. Assume that the dollar is the functional currency.

Required

1. Prepare a schedule remeasuring DaSilva Company’s December 31, 20X4, trial balance from reals to dollars.
2. Prepare a schedule providing a proof of the remeasurement gain or loss.

To determine

Introduction: Re-measurement is restatement of the foreign entity’s financial statements from the local currency that the entity used into foreign entity’s functional currency. Re-measurement is required only when the functional currency is different from the currency used to maintain foreign entity’s books and records.

Preparation of schedule re-measuring the December 31, 20X4 trial balance from reals to U.S dollars.

Answer to Problem 12.22P

Total of trial balance after re measurement to U.S dollar for December 31, 20X4 is $285,145.

Explanation of Solution

D company

Trial balance re measurement

For the year ended December 31, 20X5

Item	reals	exchange rate	U.S. Dollars
Cash	57,700	.20	11,540
Accounts receivable	82,000	.20	16,400
Inventory	95,000	.25	23,750
Prepaid insurance	2,400	.30	720
Plant and equipment’s	350,000	Schedule A	103,000
Intangible assets	30,000	.30	9,000
Cost of goods sold	230,000	Schedule B	62,250
Insurance expense	3,200	.30	960
Depreciation expense	32,500	Schedule C	9,600
Amortization expense	12,000	.30	3,600
Operating expense	152,300	.25	38,075
Dividends paid	25,,000	Schedule D	6,250
Total debit	1.072,100		285,145
Accumulated depreciation	100,000	Schedule E	29,850
Accounts payable	24,000	.20	4,800
Income tax payable	27,000	.20	5,400
Interest payable	1,100	.20	220
Notes payable	20,000	.20	4,000
Bonds payable	120,000	.20	24,000
Common stock	80,000	.30	24,000
Additional paid-in capital	150,000	.30	45,000
Retained earnings	50,000	.30	15,000
Sales	500,000	.25	125,000
Total	1,072,100		277,270
Re-measurement gain			7,875
			285,145

Items	Reals	exchange rate	U.S. Dollars
Schedule: A
Plant and equipment’s January 1 20X4	250,000	.30	75,000
Plant and equipment’s April 7, 20X4	100,000	.28	28,000
	350,000		103,000
Schedule: B
Cost of goods sold
Beginning inventory	95,000	.30	28,500
Purchases	230,000	.25	57,500
Goods available	325,000		86,000
Less: ending inventory	(95,000)	.25	(23,750)
	230,000		62,250
Schedule : C
Depreciation expenses:
January 1, 20X4	25,000	.30	7,500
April 7, 20X4	7,500	.28	2,100
	32,500		9,600
Schedule: D
Dividends
April 7 20X4	10,000	.28	2,800
October 9 20X4	15,000	.23	3,450
	25,000		6,250
Schedule E
Accumulated depreciation
Before January 1, 20X4
January 1 20X1	80,000	.30	24,000
July 10 20X2	12,500	.30	3,750
July 10, 20X2	7,500	.28	2,100
	100,000		29,850

To determine

Introduction: Re-measurement is restatement of the foreign entity’s financial statements from the local currency that the entity used into foreign entity’s functional currency. Re-measurement is required only when the functional currency is different from the currency used to maintain foreign entity’s books and records.

The schedule providing proof of the re-measurement gain or loss.

Answer to Problem 12.22P

Re-measurement gain as per schedule $7,875.

Explanation of Solution

Proof of re-measurement

Schedule 1 Statement of Net Monetary position

Items	End of year BRL	Beginning of year BRL
Monetary Assets:	57,700	62,000
Accounts receivable	82,000	83,900
Total	139,700	145,900
Monetary Liabilities:
Accounts payable	24,000	20,000
Income tax payable	27,000	30,000
Interest payable	1,100	1,000
Notes payable	20,000	20,000
Bonds payable	120,000	120,000
	192,100	191,000
Net monetary liabilities	(52,400)	(45,100)
Increase in net monetary liabilities (45,100 – 52,400)		(7,300)

  $NetMonetaryliabilities=TotalMonetaryassets-Totalmonetaryliabilities$

Net Monetary liabilities end of the year $BRL52,400=139,700-192,100$

Net monetary liabilities beginning of the year $BRL45,100=145,900-191,000$

Schedule 2 Analysis of change in Monetary accounts

Item	reals	exchange rate	U.S. Dollars
Exposed Net monetary liability	(45,100)	.30	(13,530)
Increases:
From operations:
Sales	500,000	.25	125,000
Decreases
From operations:
Purchases	(230,000)	.25	(57,500)
Operating expenses	(152,300)	.25	(38,075)
Dividends	(10,000)	.28	(2,800)
Dividends	(15,000)	.23	(3,450)
From purchase of plant and equipment’s	(100,000)	.28	(28,000)
Net monetary position prior to re-measurement			(18,355)
Exposed net monetary liability position December 31, 20X4	(52,400)	.20	(10,480)
Re-measurement gain			7,875