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	16,000		Notes payable	NGN	20,000
Inventory		10,000		Common stock		20,000
Land		4,000		Retained earnings		10,000
Building		40,000
Accumulated depreciation		(20,000	)
	NGN	50,000			NGN	50,000

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 8,000,000 NGN on the note payable.
May 1	Sold entire inventory for 16,000,000 NGN on account.
June 1	Sold land for 6,000,000 NGN cash.
Aug. 1	Collected all accounts receivable.
Sept.1	Signed long-term note to receive 8,000,000 NGN cash.
Oct. 1	Bought inventory for 20,000,000 NGN cash.
Nov. 1	Bought land for 3,000,000 NGN on account.
Dec. 1	Declared and paid 3,000,000 NGN cash dividend to parent.
Dec. 31	Recorded depreciation for the entire year of 2,000,000 NGN.

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

2008	NGN 1	=	$	0.0048
2010	1	=		0.0042
August 1, 2016	1	=		0.0062
December 31, 2016	1	=		0.0064
February 1, 2017	1	=		0.0066
May 1, 2017	1	=		0.0068
June 1, 2017	1	=		0.0070
August 1, 2017	1	=		0.0074
September 1, 2017	1	=		0.0076
October 1, 2017	1	=		0.0078
November 1, 2017	1	=		0.0080
December 1, 2017	1	=		0.0082
December 31, 2017	1	=		0.0084
Average for 2017	1	=		0.0074

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?

Answer 1

A business combination is the union of the small business units into one. The new combined unit is known as business combination. This is done for various purposes. A business combination generally increases the efficiency and productivity while reducing the costs.

Consolidated financial statements are those statements in which the financial statements of both the parent and all its subsidiaries are shown as a single entity.

The exchange rate is the exchange of the currencies of the two countries. There is a certain fee while changing the currency between two countries. Translated adjustments are made because of the fluctuations in the different currencies. This generally affects all the aspects in the income statement and the balance sheet like assets, liabilities and equity. If the adjustment is positive then it means that the company is gaining from the currency fluctuations and vice versa.

Since the functional currency is the foreign currency, hence the translation will be done at the current rate method. Hence, all the assets and liabilities will be translated at the current rate.

A.

Translated adjustments are those adjustments which are made in the income statement to incorporate the fluctuations in the exchange rates. Only the net assets will be translated. The translations can be made in the following way:

B.

In the temporal method, the translation is made according to the timings the assets and liabilities were acquired. The re-measurements can be made in the following way:

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