Question

Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 22,000 dinars, accounts receivable of 80,800 dinars, and land that cost 208,000 dinars when acquired on April 1, 2016. On January 1, 2017, Zugar has a 158,000 dinar notes payable, and no other liabilities. On May 1, 2017, Zugar renders services to a customer for 128,000 dinars, which was immediately paid in cash. On June 1, 2017, Zugar incurred a 108,000 dinar operating expense, which was immediately paid in cash. No other transactions occurred during the year. Currency exchange rates for 1 dinar follow:

April 1, 2016	$0.41 =	1 dinar
January 1, 2017	0.44 =	1
May 1, 2017	0.45 =	1
June 1, 2017	0.47 =	1
December 31, 2017	0.49 =	1

1. Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the dinar is the subsidiary’s functional currency. What is the translation adjustment for the subsidiary of the year 2017?
2. Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the U.S. dollar is the subsidiary’s functional currency. What is the remeasurement gain or loss for 2017?
3. Assume that Zugar is a foreign subsidiary of a U.S. multinational company. On the December 31, 2017 balance sheet, what is the translated value of the Land account? On the December 31, 2017 balance sheet, what is the remeasured value of the land

Answer 1

Solution:

A) Translation adjustment

Particulars	Dinar	Exchange	Amount in
Cash	22,000
Accounts Receivable	80,800
Land	208,000
Total assets	310,800
Less: Notes payable	158,000
Net asset	152,800
As on January 1 2017 Net asset	152,800	0.44	67,232
Add: Cash received	128,000	0.45	57,600
Less: Cash paid	108,000	0.47	50,760
Net assets A	172,800		74,072
Net assets B	172,800	0.49	84,672
Positive translation adjustment to be made (B-A)			10,600

B)                 Gain Remeasurement will be as follows:

Only Monetary accounts has to be remeasured using the exchange rate at the end of the year

So all adjustment in above will remain the same except land which has to be excluded for finding

Calculation of Net asset

Particulars	Dinar	Exchange	Amount in
Cash	22,000
Accounts Receivable	80,800
Less: Notes payable	158,000
Net asset	-55,200
As on January 1 2017 Net asset	-55,200	0.44	-24,288
Add: Cash received	128,000	0.45	57,600
Less: Cash paid	108,000	0.47	50,760
Net assets A	-35,200		-17,448
Net assets B	-35,200	0.49	-17,248
Positive translation adjustment to be made (B-A)			200

C)Translated value of Land account is                              = 208,000 * 0.49 = 101,920

Exchange rate is of December 31,2017                           

Remeasured Value of Land Account                                = 208,000 * 0.41 = 85,280

Exchange rate is acquisition date