Question

Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 26,800 dinars, accounts receivable of 81,700 dinars, and land that cost 217,000 dinars when acquired on April 1, 2016. On January 1, 2017, Zugar has a 167,000 dinar note payable, and no other liabilities. On May 1, 2017, Zugar renders services to a customer for 137,000 dinars, which was immediately paid in cash. On June 1, 2017, Zugar incurred a 117,000 dinar operating expense, which was immediately paid in cash. No other transactions occurred during the year. Currency exchange rates for 1 dinar follow:

April 1, 2016	$0.50	=	1 dinar
January 1, 2017	0.53	=	1
May 1, 2017	0.54	=	1
June 1, 2017	0.56	=	1
December 31, 2017	0.58	=	1

Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the dinar is the subsidiary’s functional currency. What is the translation adjustment for this subsidiary for the year 2017?

Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the U.S. dollar is the subsidiary’s functional currency. What is the remeasurement gain or loss for 2017?

Assume that Zugar is a foreign subsidiary of a U.S. multinational company. On the December 31, 2017, balance sheet, what is the translated value of the Land account? On the December 31, 2017, balance sheet, what is the remeasured value of the Land account?

Answer 1

We prepare the Balance Sheet of Zugar as on 1st January 2017, as a starting point:(calendar year as financial year) ZUGAR Limited

When translated into the Reporting currency (US $), we use 0.53 $= 1 dinar for items other than Land which shall be converted into US$ @ 0.50 $= 1 dinar and the difference is translation adjustment.

Here, the value of Land in US$=+217000*0.5= $108,500

Similarly, the value of Note Payable in $ = +167000*0.53= $88,510 ( exchange rate is: $0.53= 1 dinar on 1-1-17)

Similarly,Capital in US$ = +158500*0.53 =$ 84,005

Translation adjustment = $ 6510 which is the balancing figure .

B) The journal entry for cash sales on 1st May in dinars is:

1st May 2017 Bank A/c Dr 137,000

To Sales/ Services. 137,000

1st June Operating expenses a/c Dr 117000

To Bank a/c. 117000

Now, Bank a/c will be translated at the closing rate (31-Dec)(.58$= 1 dinar)

Expenses and sales will be translated at the date of expense/ income.

Let us combine the 2 entries and then translate them:

Bank A/c Dr 20,000dinar( $11,600)@0.58

Operating expenses Dr. 117000 dinar($65520)@0.56

To Sales. 137000dinar($73980)@0.54

To Exchange fluctuation a/c ( $3140 ) balancing figure

Note: the exchange fluctuation a/c is the translation adjustment

Now, we draft the new Balance Sheet in Dinars and then in US $ as on 31-Dec-2017:

The Balance Sheet in US$ will be (31.12.17) as follows:

The translated value of land : $108500

Remeasured value of land as on 31.12.17 is $ 125860