Essay About Translation Of Foreign Currency And Foreign Currency

Translation of Foreign Currency Financial Statements
Chapter Ten: Translation of Foreign Currency Financial StatementsLearning Objectives: to explain the nuances and define the reasoning and limitations behind the current rate and the temporal methods; describe guidelines for foreign currency financial statements; translate a foreign operation’s financial statements to its parent’s reporting currency; consolidate the financial statements of a foreign subsidiary into its parent company’s.Treatments for Translation Adjustment.Selection of appropriate method.Deciding where to report the resulting translation adjustment in the consolidated financial statements.Functional Currency Terms.Remeasurement – used to translate a foreign operation’s functional currency, if they use U.S. dollars; is done using the temporal method.Translation Adjustment – used to translate a foreign operation’s functional currency, if they use the currency of the country wherein they operate; is done using the current rate method.Highly Inflationary Economics – occurs when its cumulative three-year inflation exceeds 100%; with compounding, it is equal to an average of 26% per year for three consecutive years.Current Rate Method – all revenues and expenses are translated at the exchange rate in effect at the date when the accounting was recognized.Temporal Method – if the sub’s functional currency is the U.S. dollar, any balances denominated in the local currency must be remeasured.Nonlocal Currency Balances – If any accounts of the foreign subsidiary are denominated in a currency other than the local currency, they would have to be restated into the local currency first.Hedging Balance Sheet Exposure – when the U.S. dollar is the functional currency, or when a foreign operation is located in a highly inflationary economy, remeasurement gains and losses are reported in the consolidated income statement.Translation Adjustment with Foreign Subsidiary – if the foreign currency is the functional currency, the excess amounts are translated using the current exchange rate accompanied by a translation adjustment. Neither parent company nor subsidiary records the translation adjustment related to the excess, and it should be entered in the consolidation worksheet.