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    Assignment 5 - Answer

    Uploaded by

    Syahidatul Fatimy
    The document discusses differences between the current rate method and temporal method for foreign currency translation under IFRS and US GAAP. It provides an example of translating a Japanese subsidiary's financial statements to US dollars. Key points: 1) Under the current rate method, non-monetary assets are translated to the current exchange rate while the temporal method uses historical rates. 2) The functional currency determines the appropriate translation method - if the functional currency is the parent's reporting currency, the temporal method is used. If the functional currency is a foreign currency, the current rate method is used. 3) Worked examples show translation of a Japanese subsidiary's statement of financial position and statement of profit or loss to US dollars using

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    Assignment 5 - Answer

    Uploaded by

    Syahidatul Fatimy
    13 views3 pages
    The document discusses differences between the current rate method and temporal method for foreign currency translation under IFRS and US GAAP. It provides an example of translating a Japanese subsidiary's financial statements to US dollars. Key points: 1) Under the current rate method, non-monetary assets are translated to the current exchange rate while the temporal method uses historical rates. 2) The functional currency determines the appropriate translation method - if the functional currency is the parent's reporting currency, the temporal method is used. If the functional currency is a foreign currency, the current rate method is used. 3) Worked examples show translation of a Japanese subsidiary's statement of financial position and statement of profit or loss to US dollars using

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    Assignment 5_answer

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    The document discusses differences between the current rate method and temporal method for foreign currency translation under IFRS and US GAAP. It provides an example of translating a Japanese subsidiary's financial statements to US dollars. Key points: 1) Under the current rate method, non-monetary assets are translated to the current exchange rate while the temporal method uses historical rates. 2) The functional currency determines the appropriate translation method - if the functional currency is the parent's reporting currency, the temporal method is used. If the functional currency is a foreign currency, the current rate method is used. 3) Worked examples show translation of a Japanese subsidiary's statement of financial position and statement of profit or loss to US dollars using

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    13 views3 pages

    Assignment 5 - Answer

    Uploaded by

    Syahidatul Fatimy
    The document discusses differences between the current rate method and temporal method for foreign currency translation under IFRS and US GAAP. It provides an example of translating a Japanese subsidiary's financial statements to US dollars. Key points: 1) Under the current rate method, non-monetary assets are translated to the current exchange rate while the temporal method uses historical rates. 2) The functional currency determines the appropriate translation method - if the functional currency is the parent's reporting currency, the temporal method is used. If the functional currency is a foreign currency, the current rate method is used. 3) Worked examples show translation of a Japanese subsidiary's statement of financial position and statement of profit or loss to US dollars using

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    of 3

    ANSWER ASSIGNMENT 5

    A. Discuss TWO (2) major procedural differences in applying the current rate method from
    the temporal method.

    The major differences relate to non-monetary assets carried at historical cost and related
    expenses, i.e., inventory and cost of goods sold; property, plant, and equipment and
    depreciation expense; and intangible assets and amortization expense (//).

    Under the temporal method, these items are all translated at historical exchange rates (/).
    Under the current rate method, the assets are translated at the current exchange rate (/)
    and the related expenses are translated at the average exchange rate for the current period
    (/).

    B. Explain on functional currency and the difference between reporting currency. how a
    parent company determine the appropriate translation method for translating the financial
    statements of a foreign subsidiary under both IFRS and U.S. GAAP.

    To determine the appropriate translation method under both IFRS and U.S. GAAP, the
    functional currency of a foreign subsidiary must be identified/. The functional currency
    is the primary currency of the foreign entity’s operating environment/. It can be either
    the parent’s reporting currency / or a foreign currency (generally the local currency/.
    The functional currency orientation results in the following rule:

    Functional Currency Translation Method Translation Adjustment


    Parent’s currency Temporal method/ Gain (loss) in net income/
    Foreign currency Current rate method/ Separate component of shareholders'
    shareholders’ equity (OCI)/

    C.

    (a)
    Aloha Corporation
    Statement of Financial Position as at 31 December 2018
    JPY Exchange rate USD
    Cash 88,500,000 0.0089 787,650
    Receivables 25,500,000 0.0089 226,950
    Inventory 3,200,000 0.0088 28,160
    Plant and equipment 35,400,000 Working 2 319,680
    Less: accumulated depreciation -12,540,000 # -112,968
    1,249,47
    Total assets 140,060,000
    2

     
    Accounts payable 21,650,000 0.0089 192,685
    Long-term debt 59,000,000 0.0089 525,100
    Common stock 50,000,000 0.009 450,000
    Balancing
    Retained earnings 9,410,000 81,687
    figure
    Total liabilities and stockholders' 1,249,47
    140,060,000
    equity 2

    Working 2
    30,000,00
    Equipment- old 0.009 270,000
    0
    Equipment- New 5,400,000 0.0092 49,680
    35,400,00
    Total 319,680
    0

    12,000,00
    Accumulated depreciation- Old # 0.009 108,000
    0

    Accumulated depreciation- new 540,000 0.0092 4,968

    12,540,00
    Total 112,968
    0

    (b)

    Aloha Corporation
    Statement of Profit or Loss for the year ended 31 December 2018
    Exchange
    JPY Rate USD
    Sales 90,400,000 0.0094 849,760
    Cost of goods sold -62,000,000 Working 1 539,720
    Gross profit 28,400,000 310,040
    Selling and administrative
    -9,300,000 0.0094 -87,420
    expenses
    Depreciation expense -3,540,000 # -31,968
    Other operating expenses -7,700,000 0.0094 -72,380
    Remeasurement gain - -50,555
    (loss)
    Income before tax 7,860,000 67,717
    Income taxes -1,450,000 0.0094 -13,630
    Net income 6,410,000 From RE 54,087 ####

    Exchang
    e
    Working 1 JPY Rate USD
    Calculation of cost of
    goods sold
    Beginning Inventory 50,000,000 0.0085 425,000
    Purchases 15,200,000 0.0094 142,880
    Ending inventory -3,200,000 0.0088 -28,160
    Cost of goods sold 62,000,000 539,720

    3,000,00 27,00
    Depreciation exp- old # 0.0090
    0 0
    Depreciation exp- new 540,000 0.0092 4,968
    3,540,00 31,96
    Total
    0 8

    Statement of retained earnings


    Beginning balance 3,000,000 0.0092 27600
    Balancing
    Net income 54,087 ####
      figure
    Ending balance 9,410,000 BS   81,687

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