Question

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Rolfe Company (a U.S.-based company) has a subsidiary in Nigeria where the local currency unit is...

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 16,820 Notes payable NGN 20,440
Inventory 12,200 Common stock 22,600
Land 4,220 Retained earnings 11,300
Building 42,200
Accumulated depreciation (21,100 )
NGN 54,340 NGN 54,340

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 8,220,000 NGN on the note payable.
May 1 Sold entire inventory for 18,200,000 NGN on account.
June 1 Sold land for 6,220,000 NGN cash.
Aug. 1 Collected all accounts receivable.
Sept.1 Signed long-term note to receive 8,220,000 NGN cash.
Oct. 1 Bought inventory for 20,220,000 NGN cash.
Nov. 1 Bought land for 3,220,000 NGN on account.
Dec. 1 Declared and paid 3,220,000 NGN cash dividend to parent.
Dec. 31 Recorded depreciation for the entire year of 2,110,000 NGN.

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

2008 NGN 1 = $ 0.0070
2010 1 = 0.0064
August 1, 2016 1 = 0.0084
December 31, 2016 1 = 0.0086
February 1, 2017 1 = 0.0088
May 1, 2017 1 = 0.0090
June 1, 2017 1 = 0.0092
August 1, 2017 1 = 0.0096
September 1, 2017 1 = 0.0098
October 1, 2017 1 = 0.0100
November 1, 2017 1 = 0.0102
December 1, 2017 1 = 0.0104
December 31, 2017 1 = 0.0128
Average for 2017 1 = 0.0118

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

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

a.Positivetranslation adjustment: ?

b.Remeasurement gain: ?

Solutions

Expert Solution

a)

Particulars Amount (NGN) Rate per NGN Amount ($)
Net asset Balance, 1/1 33900000 $0.0086 291540
Increases in net assets :-
Sold inventory at a Profit, 1/5 6000000 $0.0090 54000
Sold land at a gain, 1/6 2000000 $0.0092 18400
Decreases in net assets :-
Paid a dividend, 1/12 (3220000) $0.0104 (33488)
Depreciation Recorded (2110000) $0.0118 (24898)
Net Assets Balance, 31/12 36570000 305554
Net Assets Balance, 31/12
at current exchange rate 36570000 $0.0128 468096
Translation adjustment - Positive (162542)

b)

Particulars Amount (NGN) Rate per NGN Amount ($)
Net monetary Liability Balance, 1/1 (4000000) $0.0086 (34400)
Increases in net assets :-
Sold inventory at a Profit, 1/5 18200000 $0.0090 163800
Sold land at a gain, 1/6 6220000 $0.0092 57224
Decreases in net assets :-
Bought Inventory, 1/10 (20220000) $0.0100 (202200)
Bought Land, 1/11 (3220000) $0.0102 (32844)
Paid a dividend, 1/12 (3220000) $0.0104 (33488)
Net monetary Liability Balance, 31/12 (6240000) (81908)
Net monetary Liability Balance, 31/12 at current exchange rate 6240000 $0.0128 (79872)
Remeasurement Gain (2036)

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