XYZ company (a US based company) established a subsidiary in South African on January 1, Year 1, by investing 300,000 South African rands when the exchange rate was USD $0 09 ZAR1 On that date, the foreign subsidiary borrowed ZAR 500,000 from local banks on a 15 year note to finance the acquisition of plant and equipment The subsidiarys opening balance sheet (in ZAR) was as follows Balance sheet January 1, Year 1 Items ZAR Items ZAR Cash 300,000 Long term debt 500,000 PPE 500,000 Capital stock 300,000 Total 800,000 Toatl 800,000 During Year 1, the foreign subsidiary generated sales of ZAR 1,000,000 and a net income of ZAR 110,000 Dividends in the amount of ZAR 20,000 were paid to the parent on June 1 and December 1 Inventory was acquired evenly throughout the year, with ending inventory acquired on November 15, Year1 The subsidiarys ZAR financial statements for the year ended December 31, Year 1, are as follows Income statement year 1 Sales 1,000,000 Cost of goods sold 600,000 Gross profit 400,000 Depreciation expense 50,000 Other operating expense 150,000 Income before tax 200,000 Income taxes 90,000 Net income 110,000 Statement of retained earnings Year 1 ZAR Retained earnings 1 1 Y1 0 Net income 110,000 Dividends 40,000 Retained earning 31 12 Y1 70,000 Balance sheet 31 12, Year 1 Cash 80,000 Receivables 150,000 Inventory 270,000 PPE (net) 450,000 Total assets 950,000 Account payable 80,000 Long term debt 500,000 Common stock 300,000 Retained earnings 31 12 Y1 70,000 Total liabilities and stockholders' equity 950,000 Relevant exchange rates for year 1 are as follows (USD$ per ZAR) January 1, Year 1 0 090 June 1, Year 1 0 095 Average for Year 1 0 096 November 15, Year 1 0 1 December 1, year 1 0 105 December 31, Year 1 0 110 Requirement Translate the South African subsidiarys financial statements into US dollars assuming that the South African rand is the functional currency Compute the translation adjustment by considering the impact of exchange rate changes on the subsidiarys net assets

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XYZ company (a US-based company) established a subsidiary in South African on January 1, Year 1, by investing 300,000 South African rands when the exchange

XYZ company (a US-based company) established a subsidiary in South African on January 1, Year 1, by investing 300,000 South African rands when the exchange rate was USD $0.09/ZAR1. On that date, the foreign subsidiary borrowed ZAR 500,000 from local banks on a 15-year note to finance the acquisition of plant and equipment. The subsidiarys opening balance sheet (in ZAR) was as follows:

Balance sheet January 1, Year 1

Items	ZAR	Items	ZAR
Cash	300,000	Long-term debt	500,000
PPE	500,000	Capital stock	300,000
Total	800,000	Toatl	800,000

During Year 1, the foreign subsidiary generated sales of ZAR 1,000,000 and a net income of ZAR 110,000. Dividends in the amount of ZAR 20,000 were paid to the parent on June 1 and December 1. Inventory was acquired evenly throughout the year, with ending inventory acquired on November 15, Year1. The subsidiarys ZAR financial statements for the year ended December 31, Year 1, are as follows:

Income statement year 1


Sales	1,000,000
Cost of goods sold	-600,000
Gross profit	400,000
Depreciation expense	-50,000
Other operating expense	-150,000
Income before tax	200,000
Income taxes	-90,000
Net income	110,000

Statement of retained earnings Year 1

	ZAR
Retained earnings 1/1/Y1	0
Net income	110,000
Dividends	-40,000
Retained earning 31/12/Y1	70,000

Balance sheet 31/12, Year 1

Cash	80,000
Receivables	150,000
Inventory	270,000
PPE (net)	450,000
Total assets	950,000
Account payable	80,000
Long term debt	500,000
Common stock	300,000
Retained earnings 31/12/Y1	70,000
Total liabilities and stockholders' equity	950,000

Relevant exchange rates for year 1 are as follows (USD$ per ZAR):

January 1, Year 1: 0.090

June 1, Year 1: 0.095

Average for Year 1: 0.096

November 15, Year 1: 0.1

December 1, year 1: 0.105

December 31, Year 1: 0.110

Requirement:

Translate the South African subsidiarys financial statements into US dollars assuming that the South African rand is the functional currency. Compute the translation adjustment by considering the impact of exchange rate changes on the subsidiarys net assets.