ABC Company formed a subsidiary in a foreign country on 1 January 20X1, through a combination of
Question:
ABC Company formed a subsidiary in a foreign country on 1 January 20X1, through a combination of debt and equity financing. The foreign subsidiary acquired land on 1 January 20X1, which it rents to a local farmer. The foreign subsidiary’s financial statements for its first year of operations, in foreign currency units (FC), are as follows:
The foreign country experienced significant inflation in 20X1, especially in the second half of the year. The general price index during the year was as follows:
The inflation rate in 20X1 was 100%, and the foreign country clearly meets the definition of a highly inflationary economy.
As a result of the high inflation rate in the foreign country, the FC weakened substantially during the year relative to other currencies. Relevant exchange rates between ABC’s presentation currency (US dollars) and the FC during 20X1 were as follows:
What amounts will ABC Company include in its consolidated financial statements for the year ended 31 December 20X1 related to this foreign subsidiary?
Step by Step Answer:
International Financial Statement Analysis CFA Institute Investment Series
ISBN: 9780470287668
1st Edition
Authors: Thomas R. Robinson, Hennie Van Greuning CFA, Elaine Henry, Michael A. Broihahn, Sir David Tweedie