In: Accounting
Translated at |
||
Current Rates |
Historical Rates |
|
Accounts receivable |
F 100,000 |
F 120,000 |
Marketable securities, at cost |
200,00 |
240,000 |
Prepaid insurance |
120,0000 |
130,000 |
Goodwill |
250,000 |
300,000 |
F 670,000 |
F 790,000 |
a. Assuming that the foreign subsidiary is determined to have the foreign currency as its functional currency in accordance with IAS 21, determine the total amount that should be included in Pacter’s consolidated balance sheet for the assets listed in accordance with International Financial Reporting Standards (IFRS)
b. Assuming that the foreign subsidiary is determined to have Pacter’s reporting currency as its functional currency in accordance with IAS 21, determine the total amount that should be included in Pacter’s consolidated balance sheet for the assets listed in accordance with IFRS.
IAS 21 deals with effects of changes in Foreign exchange rates and outlines how to account for foreign currency transactions and operations in financial statements. It devises current rate and temporal method for foreign translation.
In current rate method, most of items in financial statements are translated at current exchange rates. This method is appropriate when the subsidiary is not fully integrated with parent company and the local currency is the functional currency for the subsidiary.
While under temporal method, the exchange rates are based on historical rates. Temporal method is also popularly called historical method. This method is appropriate when the subsidiary does not use the local currency as the functional currency. Hence, parents have to convert using the historical rates.
However, under temporal method, the monetary assets such as accounts receivables and investments are converted at exchange rate applicable at balance sheet date. For the solution, accounts receivable conversion will be made under current rate for temporal method.
Requirement a
Current Rate method
Accounts Receivable |
F 100,000 |
Marketable securities at cost |
200,000 |
Prepaid insurance |
120,000 |
Goodwill |
250,000 |
Total amount of assets |
F 670,000 |
Hence, total amount of asset to be reported under Pacter's consolidated balance sheet would be F 670,000.
Requirement b
Temporal Method
Accounts Receivable |
F 100,000 |
Marketable securities at cost |
240,000 |
Prepaid insurance |
130,000 |
Goodwill |
300,000 |
Total amount of assets |
F 770,000 |
Hence, total amount of asset to be reported under Pacter's consolidated balance sheet would be F 770,000.
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