Chapter 10

To prepare worldwide consolidation financial statements a US parent must

- convert the foreign GAAP financial statements of its foreign operations into US GAAP and - translate the financial statements from the foreign currency into US dollars

The remeasurement gain or loss appears on the

income statment

LCM

lower of cost or market price noted in in question; if not assume cost

If a foreign sub is located in a hyperinflationary economy which method?

neither temporal or current rate method Use a 2 step process IAS 29

Differences in total assets and liabilities plus equity which must be reconciled resulting in a

remeasurement gain or loss

Remeasurement requires

the application of the temporal method

Translation of foreign subsidiary's financial statement In translating a foreign subsidiary's financial statements, which exchange rate does the current method require for the subsidiary's asset and liability?

the exchange rate in effect as of the balance statement date

Conversion of Sale Revenue Westmore Ltd is a British sub of a US company. Westmore's functional currency is the pound sterling. The following exchange rate were in effect during 2013 Jan 1 1 = $1.60 June 30 1 = $1.64 Dec 31 1 = 1$.61 Weighted avg for year 1 = $1.59 Westmore reported sales of 1,500,000 pounds sterling during 2013. What amount would have been included for this Sub's in calculating consolidated sales

1,500,000 * $1.59 = $2,385,000

Does FASB express a preference for either of the two views? temporal or current rate method?

FASB does not express preference for either of the two views

IFRS

For all countries

Under the temporal method, can a single exchange rate be used to directly translate COGS in foreign currency into COGS in dollars

NO

For highly inflationary economies, which method is used?

Temporal

Functional Currency For a foreign subsidiary that uses USD as it's functional currency, what method is required to ready the financial statements for consolidation

Temporal Method

Remeasurement of Foreign Sub Financial Statement According to US GAAP for a local currency perspective, which method is usually required for the remeasurement of a foreign sub's financial statement into the parent's reporting currency

Temporal Method

What are the 2 major translation methods currently used

1. current rate method 2. the temporal method

What are 2 issues that arise related to the translation of foreign financial statements

1. selecting the appropriate method 2. deciding where to report the resulting translation adjustment in the consolidated financial statements

What are 2 major related theoretical issues of conversion and translation of worldwide consolidated financial statements?

1. which translation method should be used 2. where the resulting translation adjustment should be reported in the consolidated financial statement

Translation of a Foreign Sub Financial Statement According to the US GAAP for a local currency perspective, which method is usually required for translating a foreign subsidiary's financial statement into parent reporting currency

Current rate method