Question

Q#6

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	15,560		Notes payable	NGN	20,080
Inventory		10,400		Common stock		20,080
Land		4,040		Retained earnings		10,040
Building		40,400
Accumulated depreciation		(20,200	)
	NGN	50,200			NGN	50,200

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 8,040,000 NGN on the note payable.
May 1	Sold entire inventory for 16,400,000 NGN on account.
June 1	Sold land for 6,040,000 NGN cash.
Aug. 1	Collected all accounts receivable.
Sept.1	Signed long-term note to receive 8,040,000 NGN cash.
Oct. 1	Bought inventory for 20,040,000 NGN cash.
Nov. 1	Bought land for 3,040,000 NGN on account.
Dec. 1	Declared and paid 3,040,000 NGN cash dividend to parent.
Dec. 31	Recorded depreciation for the entire year of 2,020,000 NGN.

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

2008	NGN 1	=	$	0.0052
2010	1	=		0.0046
August 1, 2016	1	=		0.0066
December 31, 2016	1	=		0.0068
February 1, 2017	1	=		0.0070
May 1, 2017	1	=		0.0072
June 1, 2017	1	=		0.0074
August 1, 2017	1	=		0.0078
September 1, 2017	1	=		0.0080
October 1, 2017	1	=		0.0082
November 1, 2017	1	=		0.0084
December 1, 2017	1	=		0.0086
December 31, 2017	1	=		0.0092
Average for 2017	1	=		0.0082

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?

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

a		translation adjustment
b

Please show your calculations

Answer 1

a.Compute translation adjustment	Amount in 000
	Local Currency NGN	Exchange Rate US $	Amount in $
Net asset balance 1/1(total assets - notes payable)	30,120	0.0068	$204.82
Increases in net assets (income)
Sold inventory at a profit 5/1 (NGN 16,400 - 10,400)	6,000	0.0072	$43.2
Sold land at a gain 6/1 (NGN (6040 -$4040)	2,000	0.0074	$14.8
Decreases in net assets
Paid a dividend 12/1	-3040	0.0086	-$26.14
Depreciation recorded	-2020	0.0082	-$16.56
Net asset balance 12/31	$33,060		$220.11
Net asset balance 12/31 at current exchange rate	$33,060	0.0092	-$304.15
Translation adjustment - positive			-$84.04
Translation adjustment has impact on net assets due Changes in functional currency.	-$84.04
Translation adjustment —positive	-$84.04
b. Compute remeasurement gain/loss
	Local Currency KM	Exchange Rate US $	Amount in $
Beginning net monetary liability position (purchase of land on account) (3040 - 2000)	-1040	0.0068	-$7.07
Increases in monetary assets:
Sold inventory 5/1	16400	0.0072	$118.08
Sold land 6/1	6040	0.0074	$44.7
Decreases in monetary assets:
Bought inventory 10/1	-20040	0.0082	-$164.33
Bought land 11/1	-3040	0.0084	-$25.54
Paid a dividend 12/1	-3040	0.0086	-$26.14
Ending net monetary liability position	-4720		$60.3
Ending net monetary liability position at current exchange rate	-4720	0.0092	$43.42
Remeasurement Loss			$16.88
Remeasurement Gain/loss has impact on net monetary assets and liabilities due Changes in functional currency.	$16.88
Payment on the note payable and collection of accounts receivable do not affect the net monetary liability position
The purchase of land on account did not result in a decrease in monetary assets, rather an increase in monetary liabilities.