
a.
Prepare the Mexican peso trail balance for Company C S.A. for the year ending December 31, 2017 verify the amount of remesurement gain/loss derived as a plug figure in the spreadsheet through separate calculation.
a.

Explanation of Solution
Re-measurement of foreign currency balance: A portion of subsidiary’s operation is in Brazil. These balances must be remeasured into functional currency before the transaction process begins. In measuring these accounts using temporal method, peso value of the monetary assets and liabilities is determined by using the current (C) exchange rate
Particulars | BRL | Exchange Rate | MXN | ||
Debit | Credit | Debit | Credit | ||
Cash | 5,500 | 6.3C | 34,650 | ||
Account Receivable | 28,000 | 6.3C | 176,400 | ||
Notes payable | 5,000 | 6.3C | 31,500 | ||
Sales | 35,000 | 6.3A | 217,000 | ||
Rent Expenses | 6,000 | 6.3A | 37,200 | ||
Interest Expenses | 500 | 6.3A | 3,100 | ||
Total | 40,000 | 40,000 | 251,350 | 248,500 | |
Remeserment gain | 2,850 | ||||
Total | 251,350 | 251,350 |
Table: (1)
Remeserment gain for 2017:
Particular | Amount |
Net monetary assets 1/1/2017 | 0 |
Increase in net monetary items operation: | |
( Sales-Rent-Interest) | 176,700 |
Decrease in net monetary items operation : | |
Net current asset 28,500 | 176,700 |
Net asset at current rate | 179,550 |
Remeserment gain/(loss) | 2,850 |
Table: (2)
The net monetary assets exposure cash and
The re-measured figures from BRL must be combined in some manner with the subsidiary’s
Particulars | MXN | |
Debit | Credit | |
Cash | 34,650 | |
Account Receivable | 176,400 | |
Notes payable | 31,500 | |
Sales | 217,000 | |
Rent Expenses | 37,200 | |
Interest Expenses | 3,100 | |
Total | 251,350 | 248,500 |
Remeserment gain | 2,850 | |
Total | 251,350 | 251,350 |
Table: (3)
Preparation of adjustment trial balance in Mexican Peso:
Particulars | Unadjusted | Adjustments | Adjusted | |||
Debit | Credit | Debit | Credit | Debit | Credit | |
Cash | 1,000,000 | 34,650 | 1,034,650 | |||
Account Receivable | 3,000,000 | 176,400 | 3,176,400 | |||
Inventory | 5,000,000 | 5,000 | 5,000,000 | |||
Land | 2,000,000 | 35,000 | 2,000,000 | |||
Machinery and equipment | 15,000,000 | 15,000,000 | ||||
6,000,000 | 6,000,000 | |||||
Accounts Payable | 1,500,000 | 1,500,000 | ||||
Notes payable | 4,000,000 | 31,500 | 4,031,500 | |||
Common stock | 12,000,000 | 12,000,000 | ||||
2,500,000 | 2,500,000 | |||||
Sales | 34,000,000 | 217,000 | 34,217,000 | |||
Cost of goods sold | 28,000,000 | 28,000,000 | ||||
Depreciation Expenses | 600,000 | 600,000 | ||||
Rent Expenses | 3,000,000 | 37,200 | 3,037,200 | |||
Interest Expenses | 400,000 | 3,100 | 403,100 | |||
Dividend Expenses 7/1/2017 | 2,000,000 | 2,000,000 | ||||
Re-measurement Gain | 2,850 | 2850 | ||||
Total | 60,000,000 | 60,000,000 | 251,350 | 251,350 | 6,0251,350 | 6,0251,350 |
Table: (4)
Having established all accounts balances in the functional currency (MXN) the subsidiary’s trial balance now can be translated into US Dollar, under the current rate method, the dollar value to be reported for income statement items are based on the average exchange rate for the current year.
All assets and liabilities are translated at the current exchange rate at the
b.
Using the part a translate Company C SA’s peso trial balance into US Dollar to facilitate Company M’s preparation of consolidated financial statements, verify the amount of cumulative translation adjustment desired as a plug figure in the spreadsheet through separate calculation.
b.

Explanation of Solution
Translation of subsidiaries trial balance into US Dollar using current rate method as functional currency is local currency.
Trial balance as on December 31, 2017:
Particulars | NMX | Exchange rate | US Dollar | ||
Debit | Credit | Amount | Debit | Credit | |
Cash | 1,034,650 | 0.072C | 74,494.8 | ||
Account Receivable | 3,176,400 | 0.072C | 228,700.8 | ||
Inventory | 5,000,000 | 0.072C | 360,000 | ||
Land | 2,000,000 | 0.072C | 144,000 | ||
Machinery and equipment | 15,000,000 | 0.072C | 1,080,000 | ||
Accumulated | 6000000 | 0.072C | 432,000 | ||
Accounts Payable | 1500000 | 0.072C | 1,080,000 | ||
Notes payable | 4,031,500 | 0.072C | 290,268 | ||
Common stock | 12,000,000 | Given | 1,000,000 | ||
Retained earnings (1/1/2017) | 2,500,000 | Given | 200,000 | ||
Sales | 34,217,000 | 0.075A | 2,566,275 | ||
Cost of goods sold | 28,000,000 | 0.075A | 2,100,000 | ||
Depreciation Expenses | 600,000 | 0.075A | 45,000 | ||
Rent Expenses | 3,037,200 | 0.075A | 227,790 | ||
Interest Expenses | 403,100 | 30,232.5 | |||
Dividend Expenses 7/1/2017 | 2,000,000 | 146000 | |||
Remesurement Gain | 2,850 | 213.75 | |||
Total ( of all) | 60,251,350 | 60,251,350 | 4436218.1 | 4,596,756.75 | |
Cumulative translation adjustment | 160538.65 | ||||
60,251,350 | 60,251,350 | 4,596,756.75 | 4,596,756.75 |
Table: (5)
The Cumulative translation adjustment at 12/31/2017 comprises the beginning balance (given) plus the translation adjustment for the current year.
Translation adjustment, 2017:
Particular | Amount |
Net assets 1/1/2017 ( Common stock + Retained earnings 12000000 + 2500000) | 1,160,000 |
Increase in net assets: | |
Net income 2017 | 163,466.25 |
Decrease in net assets: | |
Dividend (7/1/2017) | (146,000) |
Net asset (12/31/17) 14,679,550 | 1,177,466.25 |
Net asset at current rate | 1,056,927.6 |
Translation adjustment, 2017 ( negative) | 120,538.65 |
Table: (6)
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