Question

Rolfe Company (a U.S.-based company) has a subsidiary in Nigeria where the local currency unit is the naira (NGN). On December 31, 2016, the subsidiary had the following balance sheet (amounts are in thousands (000's)):

Cash	NGN	16,400		Notes payable	NGN	20,200
Inventory		11,000		Common stock		21,200
Land		4,100		Retained earnings		10,600
Building		41,000
Accumulated depreciation		(20,500	)
	NGN	52,000			NGN	52,000

The subsidiary acquired the inventory on August 1, 2016, and the land and building in 2010. It issued the common stock in 2008. During 2017, the following transactions took place:

2017
Feb. 1	Paid 8,100,000 NGN on the note payable.
May 1	Sold entire inventory for 17,000,000 NGN on account.
June 1	Sold land for 6,100,000 NGN cash.
Aug. 1	Collected all accounts receivable.
Sept.1	Signed long-term note to receive 8,100,000 NGN cash.
Oct. 1	Bought inventory for 20,100,000 NGN cash.
Nov. 1	Bought land for 3,100,000 NGN on account.
Dec. 1	Declared and paid 3,100,000 NGN cash dividend to parent.
Dec. 31	Recorded depreciation for the entire year of 2,050,000 NGN.

The U.S dollar ($) exchange rates for 1 NGN are as follows:

2008	NGN 1	=	$	0.0058
2010	1	=		0.0052
August 1, 2016	1	=		0.0072
December 31, 2016	1	=		0.0074
February 1, 2017	1	=		0.0076
May 1, 2017	1	=		0.0078
June 1, 2017	1	=		0.0080
August 1, 2017	1	=		0.0084
September 1, 2017	1	=		0.0086
October 1, 2017	1	=		0.0088
November 1, 2017	1	=		0.0090
December 1, 2017	1	=		0.0092
December 31, 2017	1	=		0.0104
Average for 2017	1	=		0.0094

A. Assuming the NGN is the subsidiary's functional currency, what is the translation adjustment determined solely for 2017?

B. Assuming the U.S.$ is the subsidiary's functional currency, what is the remeasurement gain or loss determined solely for 2017?

(Input all amounts as positive. Enter amounts in whole dollars.)

Answer 1

Compute Translation Adjustment assuming NGN as the subsidiary's functional currency as follows

Particulars	Amount	Rate Per NGN	Amount
Net Assets on Dec 31, 2016
(NGN 16400+11000+4100+41000-20500-10600)	41,400,000.00	0.0074	306,360.00
Increases in Net Assets (Income)
Profit from inventory sales (17000000-11000000)	6,000,000.00	0.0078	46,800.00
Gain on Sale of Land (6100000-4100000)	2,000,000.00	0.008	16,000.00
Deduct: Decrease in net assets
Dividends Paid	3,100,000.00	0.0092	28,520.00
Depreciation provided during the period	2,050,000.00	0.0094	19,270.00
Net Assets on Dec 31, 2017	44,250,000.00		321,370.00
Deduct:- Net Assets balances at current exchange rate	44,250,000.00	0.0104	460,200.00
Positive Translation Adjustment			138,830.00

Compute remeasurement gain or loss assuming USD as the subsidiary's functional currency as follows

Particulars	Amount	Rate Per NGN	Amount
Net Monetary Position Dec 31 2016
(20200000-16400000)	3,800,000.00	0.0074	28,120.00
Deduct:- Increase in Monetray assets
Inventory Sales	17000000	0.0078	132,600.00
Land Sale	6100000	0.0086	52,460.00
Add:- Decrease in Monetary assets
inventory Purchases	20160000	0.0088	177,408.00
Land Purchases	3100000	0.009	27,900.00
Dividend Payments	3100000	0.0092	28,520.00
Net Monetary Liability position dec 31 2017	7,060,000.00		76,888.00
Deduct:- Net Monetary liability position at current exchange rate	7060000	0.0104	73,424.00
Remeasurement Gain			3,464.00