Question

How should a U.S. company with an international subsidiary decide whether to use remeasurement or translation to convert the accounts of the subsidiary to U.S. dollars?

	A.	Remeasure if the subsidiary does most of its business in its own country but translate if the country has hyperinflation.
	B.	Remeasure if the subsidiary does most of its business in U.S. dollars, but translate if the country has hyperinflation.
	C.	Translate if the subsidiary does most of its business in its own country but remeasure if the country has hyperinflation.
	D.	Translate if the subsidiary does most of its business in U.S. dollars, but remeasure if the country has hyperinflation.

Answer 1

ANS:

C.	Translate if the subsidiary does most of its business in its own country but remeasure if the country has hyperinflation.

If your business entity operates in other countries, you will be using different currencies in your business operations. However, when it comes to accounting, your financial statements have to be recorded in a single currency. This is why you need to perform foreign currency translation.

For example, if your company has its headquarters in the US but has operations in the UK, you must translate the British pound into US dollar.

A part of their financial record keeping, foreign currency translation is the process of estimating the amount of money in one currency in the denomination of another currency. The process of currency translation makes it easier to read and analyze financial statements which would be impossible if they were to feature more than one currency.