Chapter 21 Problem I Functional Cunency Is the Local Currency Unit - Translation Into the Presentation Currency (Cuttent/Closing Rate Method) Functional Cunency 's Local Currency Unit - US Dollars Translation into the Presentation Cuency (Current/Closing Rate Method) Translation | Adjusted Tal Combined Statement of Income and Adusted Tral Exchange | Balance Retained Earnings Balance ($) Rate (Pesos) Sale 3624000 | (a)_| 020 1a 684800 Cost of goad sod "Z770.000_| (a) | 020. 29 244000. Depreciation ements T2000 14) | 020. “482400 ‘Other expenses 78.000 (a) [020 H597.200. Thoome fox expen e001 (a) | 020 2955 00 Nef hoome fo Retoned Faring 399.600. 75.063 920 Retained eomings 1/1 ‘575.000 a 7230-0009, Total 975.600 '39.103.920 Tis: igen declares! 97170 360.000 [TAT [a0 74496 000 Retained comings, 12/31 fo tolonce Sheet 315.00 yase7 20 Baonce Sheet Cah. Tiveeoo [Tey | 25 oO ‘Accounts recervabie [nef] 723,600| (6) | 025 2336 400. ventory (FO) 335.000 [(¢) [2025 0.089.000. Lan. 00.000 | (¢) [20.25 24150.000) Bulcings (nef) 750.000"|-(¢) | 025 3,295,000. Equiement nef) sisc00 (ce) [2025 20 769,000, Total 74737600 190688 00 “Ascounh Baya, Tea oo0-| TE] | 2S SOO Shor-ferm noter payoule 762000| (6) | 025 '30.70.500. Bonds payable Toso.c00_|-(¢) [2025 470,000 ‘Common slock P10 par. 182000 (a) | 0.00 6,080,000. Faigtin coptal in excess Gf por ‘360,000 |" (a) [0.00 74.400, 000- Reteined eomings from above 515.600 24567 920) Total F737 600. 790120020 Foreign Curency Wandin Resene Gain OC creat BA 297980 Total aa Tansee 00 ‘Wielude ar @ conponentot other comprehensive neam= (1) Retained eamings in pesos on January 2 (date of acquistion [A] Average exchange fate used fo approumate ihe rafe on the date these elements were recognized J Histoncal exchange rate [C)Comentexchange rote 15) 8/4 ~balancing amount Verification of the Translation Adjustment - Cutrent/Closing Rate Method (Functional Currency ~ US Dollars) Translation | Reporting Exchange | Currency Us$ Rate (Pesos) 1/2 Exposed net asset postion "7,088,000 | 40.00 183,520,000 “Aqustments for changes in net asrel pesifion during year Net income forvear. wr mo | HI TS085 926)Divdend: declared woo] [10 [1zB5 005] Net asset position translated using rate in effect at date of each transaction 85,147,920 12/31 Exposed net asset position. Zar so [5 85,635,900 ‘Change in cumulative Translation adjustment dying year—net increase 487,980 172 Comviative Hransiation adjusiment™ o 12/37 Cumulative translation adustment. 57.960 +A condensed balance sheet for Company en January 2 20x4vias as flo: WS we Wenetary ne 7.20000 | Nenetory bebiiies Zico, Nonmanetary ane ‘Connon sok 7182000 Trveniony 312000_| Paickin capital in exes of por "360.00 Fed orate Zio16.000 | Retewned ersngs 575.000 Total 22000 | toto Zsw0 I] Net onieh = $4228 000 $2160 000 = FOB OS “the beginning bolance is ro since ths war the fict yeor the investment vas hela Statement of Comprehensive Income and Statement of Shareholders’ Equity Functional Cuency Is Local Cuency Unit - US$ Translation inte the Presentation Cutrency (Curent/Closing Rate Method) S Company Statement of Comprehensive Income For the Year Ended December 31, 20x4 Wetincome PISO (Other comprehensive income Foreign curtency translation reserve gain 87980 ‘Comprehensive Income Fis 055 100 Company Statement of Shareholders’ Equity For the Year Ended December 31, 20x4 Padin copitalin Common | excess of | Retained Stock par Earrings | oct Total Balance, 1/1/2004 P45,080,000 | P14 400,000 | 723,040,000 [PO | P83.520,000 ‘Comprehensive Income: Netincome TOSI TESS 920 (Other comprehensive Income 487.980 487,980 Comprehensive Ineore 100,071,900 Divdends declared ERSTIO 114436000] Balance, 12/31/20x4 £42090,000 | f14400,000 | p24.667970 | Bapro80 | 785,635,900 ‘OCI cher comprehensive mcome 2. Translation into the Functional Cuttency (Remeasurement ot Temporal Method)Functional Cunency Is Phi 1 pine Peso - Tianslation into the Functional Currency (Remeasurement or Temporal Method) ‘Aduited Remeasurement | _Aduited Til Exchange | Thal Balance Bctonce Sheet balance { Rate, (Pesos) Cah. 1116000 [TE] 2025 4491900 ‘Account: receivable [nef] 729.600 [ 1) 20.25 29,366 00 inventory (FFO) 396.000 Teheule 20,059 120 Tana. 00.000-| “TAY 000 724000000 Bulings (nef) 790,000 [~(H) 70.00 31, 2000000 Equiement nef) 516000 |~(H) 7600 20.540.000, Total 3737600 190184520 “AScounh Baya, 7ea005 TET 25 Saaz Shor-fern noter poyouie 762.000 IC) 2025 30.670 500 Bonds payne Trosa.000 |" 1) 20.25 3 470000 ‘Common stock P10 por 1.182.000 [(H) 000 080,000 Faigiin coptal in excess Gf par '360.000-|(3) 20.00 14400000) Retained eomingt 15.600 (Ay 74552020, Total a737600, Teo 184.520 Combined Statement of Income and Retained Earnings Sale saaom [AY oa Ta eaaoD Cost of goad sod 72.720 000 Schedule 29.041 680 Depreciation ements 120.000 |} 000 480000, ‘Oiher expenses 735,000 [1A) 7020 97200 Thoame fox espenie 38-00 (A) 020 3955 00 Nefincome before remeonremantlow 1527020 Remeorurement lotr - dat a 222920 Nef home to Retoned_Eoring 33 00 Tapa 020 Retained eomingr. 1 575000 T 23040000 Total 975 600 39,088 020 Tis: Deidara declares! 97172 360000 | (AY m0 14496 00) Retained eomings_ 12/51 from bolonce sheet 15.500 7552020 ‘thekide ar a componantof other comprehensive income (1) Retained eamings in pesos on January 2 (date of acquisition) A] Average exchange rate used 1b approumate the rafe on the date these elements were recognited. {H]Histoncal exchange rat IC) Cumentexchange rate 3/A balancing ammount Schedule iranslaton of Cost of Good Sole Remeaivrement Exchange Accounts Rate Pesoe Beginning inventory (essumed) ‘312000 | TH] 2.00 36 0000 Purchases (assumed) Zsp4000 [Ay 22 32200800 Total 3216 000, 729-100 800 Tess: ncing inventory, 396000 | 1A) az 0.059 120 Cost of goods sold Zea. “e081 660 Ver (functional Currency ~ Philippine Peso) tification of the Translation Adjustment - Remeasurement or Temporal Method Translation Exchange us$ Rate Reporting Cunency (Pesos)TZ Empered net monetary labilly pesifon: BHD | HOO 35,600,000 “Adjustments for changes in nef monetary pesiion duing year Tess: Increare in Cash Gnd receivables homsaler (ea24000) | 020 135, GBEBO0 ‘Add: Decrease in monetary assets orincrease in menetaty tabitties Purchases, 2.304000 | 40.20 92,620,800 ‘Other expenses 786000 | 40.20 31,597,200 Income taxes 98,400 | 4020 3.955, <80 Divdends declared 360,000 | 40.10 14.436,000) Nef monetary tabilty position translated uiing rate In effect at date of each transaction 30,524,880 Tess: 12/31 Exposed net monetary labilty position Tea e0 | w025 30,767,100 Remearurement g |35. [6 [43 [e|51.|b |5%.]a ]é7 |b | mle 4 [0 [12 |e [20 |» [28 [ol%. [c|44 [o|s2]a | ]alele|mla s{C [13 |e |2i. le [2 [4]37[c]45 [6|53 le |él.lalele|7la 6 {8 [4 le [2 [4 [9 |b|98 [a]4 [c|S4 le |e2]|b|]4| lb ZA 15 fe [23 [e [3 [b> / 39. la ]47 | [55 |b [63a [7 la 6 [0 [ele [24 [oe [32 [a]40. fe ]48 fe |56 |b [64 le lle Note for: 17, Note: Answer-d - underPAS 29 in relation to PAS 21, itrequites restatement fistbefore translation and neither of the ‘wo methods & use. In facta asset, labilties and equity accounts are franslated using cumentrates. In US, the temporal method i used in cases of highly inflationary economy. 39, The unadjusted thal balance i remeasured regardless of fe functonal cumency. ForUS GAAP, the answer should be letter'D.SI. Because the peso is he functional cumency, the financial statements rust be translated using the cument rate method. Therefore, answen (a/and (d}can be eliminated. Bacavee the wubsidiary has a netaseetporiton and the [paso has appreciated from. 16 to P19, a postive translation adjustment wil resutt 52. Alazetaccount are translated atcunentrates 56. By tanslaing items camied at hstorcal cost by the histoncal exchange rate, the temporal method maintains the Underlying valvaton method vsed by the foreign subsidiary. 54 Marketable equity sacuntes are camed at market valve and therefore translated at the cument exchange rate Under the temporal method. 55. When the US. dollar's the functional cumency, SFAS 52 requires remeasurement using the temporal method with remeazurementgains and lotsee ported in income, Wages payable & translated atthe cument exchange rate Gains and lorses on hedges of natinvarimants whether trough 2 forward contract borowing, or other technique) are offsetagainstihe translation adjustment being hedged 58, Remeasurementgains are reported in the income statementat a partof income from contnuing operations 64 When the remeasurement method used, monefary accounts are restated af the exchange rate at the balance shest date, whie nonmonetary accounts are restated using the exchange rate(s] at the date(s) he transaction 6) cccumed which are reflected in the account balance. In this queston, bonds payable and acemed labilties are ‘both monetary account and would be restated using the balance sheet exchange rate. Trading secures representa nonmonetary account Tradng secutites would be restated using the balance sheetrate because Me account balance i sted ot he market valver at the balance thaet date. Inventones are also a nonmonetary asset Since they are stated at cost-a historical exchange rate would be used to restate nventones 62. The cument rate method of translation allows the use of a weighted average exchange rate for revenues and ‘erpenser that occur throughout the year Sncm both salet and wager expense oceum throughout the year 2 weighted average exchange rate can be used for ranslaton 63. Forhedges of netinvestmantsin a foreign entty, the amountof the change in fairvalve of the hedging insumentis recorded 1 other comprehensive income that then becomes part of the accumulated other comprehensive Income The change in the translation adjustment dumg the period if reported as a component of other comprehensive income and then camed fonvard fo be accumulated in the stockholien" equity section of he balance sheetwih te other components of ofher comprehensive income: Therefore, in this casein which a hedge of a netinvesimentin a foreign ently i used, the exchange gain on the hedge i reported along with the change in ‘he translation adjustment ae