In order to demonstrate the use of the re measurement process
In order to demonstrate the use of the re-measurement process, assume that at the beginning of the year a U.S. parent company invested 100,000 foreign currency B (FCB) to form a 100% owned subsidiary. The subsidiary immediately invested the foreign currency in land at a cost of 50,000 FCB and inventory with a cost of 50,000 FCB. At midyear, 50% of the inventory was sold for 40,000 FCB. At year-end, assume that the sale is still uncollected. Although FCB is the subsidiary’s functional currency, the subsidiary maintains its books of record in foreign currency A (FCA). Assume the following exchange rates:
1. Prepare the entries to record the above transactions:
(a) As they would have been recorded on the books of the subsidiary and
(b) As they would have been recorded had they been recorded in terms of FCB.
Also, prepare the trial balance that would have resulted under each of the recording models.
2. Prepare a schedule to re-measure the FCA trial balance into an FCB trial balance and then translate into U.S. dollars.
3. Prepare a schedule to directly calculate the translation adjustment to be reported in other comprehensive income.
4. Compare the re-measured FCB trial balance to the FCB trial balance in part (1) and comment regarding whether the objectives of translation have been achieved.
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