In the last example we arrived to a negative accumulated translation difference when using the closing rate method but a positive translation profit when using the temporal method. WHAT IS THE REASON FOR THAT? (we need to prove, why).

Flex Co Flex Co International is a U.S. company with a subsidiary in Japan that began operation on January 1, 20X8. We observed the following set of exchange rates per JPY and other company data January 1, 20X8: USD 0.00877 December 31, 20X8: USD 0.00763 June 30, 20X8: USD 0.0081 Average rate of 20X8: USD 0.00806 The company uses the FIFO inventory assumption and purchased and sold inventory evenly throughout the year The subsidiary paid JPY200,000 in dividends on June 30, 20x8 All equity was issued and non-current assets were purchased on January 1, 20X8 Cash Accounts receivable Inventory Non-current assets Statement of Financial Posittion January 1, 20X8 December 31, 20X8 PY100,000 800,000 850,000 650,000 JPY200,000 500,000 500,000 800,000 Accounts payable Long term debt Shaecapital Retained earnings PY400,000 600,000 1,000,000 PY500,000 500,000 1,000,000 400,000 20X8 Income Statement Revenues Cost of goods sold Depreciation Income tax expense Profit for the year JPY 4,000,000 (2,500,000) (700,000) (200,000 JPY 600,000 Required (a) Use the temporal method to re-measure the 20X8 results to USD (b) Use the closing rate method to translate the 20X8 result into USD