Question
Foreign Currency Translation2018 The financial statements of foreign subs must be either translated or re-measured into domestic currency before consolidated statements can be prepared.Re-measurement occurs
Foreign Currency Translation2018
The financial statements of foreign subs must be either translated or re-measured into domestic currency before consolidated statements can be prepared.Re-measurement occurs primarily when the foreign currency is hyperinflationary and will not be discussed. Translation requires the conversion of foreign statements into domestic currency using fiscal year end rates for balance sheet accounts, average rates for revenue and expense and spot rates for gains, losses, dividends, as these items can be associated with a specific rate. Any differences are plugged to other comprehensive income.
Homework
Record the following.
P established a subsidiary called Foreignin the country of Zed whose currency is the Z. P invested Z200 when the Z:$ rate was 2:1.During 2015 Zedearned Z80 (average rate = 2.5:1), paid a dividend of Z55 (spot rate = 2.75:1).The year-end rate was 3:1.
In 2016 Foreign's income was Z100, (2.4:$1), dividends =50 (Z2:$1), yearend rate = (Z1.87:$1)
Entries in P's books are all in $s, those in Foreign's are in Zs. All movements of currency to and from Zed are instantaneously and costlessly converted from $s to Zs, or the reverse without recording a position in foreign currency. Best way to think about it: P and Foreign make direct deposits into each other's bank accounts with the bank handling the currency exchange, thus P only "sees" $s, Zed only "sees" Zs.
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