In: Accounting
Aerkion Company starts 2015 with two assets: cash of 19,000 LCU (local currency units) and land that originally cost 70,000 LCU when acquired on April 4, 2005. On May 1, 2015, Aerkion rendered services to a customer for 33,000 LCU, an amount immediately paid in cash. On October 1, 2015, the company incurred a 19,800 LCU operating expense that was immediately paid. No other transactions occurred during the year. Currency exchange rates for 1 LCU follow: |
April 4, 2005 | LCU 1 | = | $ 0.32 | |
January 1, 2015 | 1 | = | 0.33 | |
May 1, 2015 | 1 | = | 0.34 | |
October 1, 2015 | 1 | = | 0.35 | |
December 31, 2015 | 1 | = | 0.39 | |
a. |
Assume that Aerkion is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the LCU is the subsidiary’s functional currency. What is the translation adjustment for this subsidiary for the year 2015? |
b. |
Assume that Aerkion 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 2015? |
Translation adjustment for this subsidiary for the year 2015: | ||||
Particulars | LCU | Rate | Amt | |
Net assets 01/01/2015 | $ 89,000 | 0.33 | $ 29,370 | |
(89000*0.33) | ||||
Changes in net assets rendered services | $ 33,000 | 0.34 | $ 11,220 | |
(33000*0.34) | ||||
Incurred expenses | $ -19,800 | 0.35 | $ -6,930 | |
(19800*0.35) | ||||
Net assets 31/12/2015 | $ 1,02,200 | $ 33,660 | ||
Net assets 31/12/2015 at current exchange rate | $ 1,02,200 | 0.39 | $ 39,858 | |
(102200*0.39) | ||||
Translation adjustment | $ 6,198 | |||
(39858-33660) | ||||
Remeasurement gain or loss for 2015: | ||||
Particulars | LCU | rate | Amt | |
Net monetary assets 01/01/2015 | $ 19,000 | 0.33 | $ 6,270 | |
Changes in net monetary assets rendered services | $ 33,000 | 0.34 | $ 11,220 | |
Incurred expenses | $ -19,800 | 0.35 | $ -6,930 | |
Net monetary assets 31/12/2015 | $ 32,200 | $ 10,560 | ||
Net assets 31/12/2015 at current exchange rate | $ 32,200 | 0.39 | $ 12,558 | |
Re-measurement gain | $ 1,998 | |||