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	15,890		Notes payable	NGN	20,020
Inventory		10,100		Common stock		20,020
Land		4,010		Retained earnings		10,010
Building		40,100
Accumulated depreciation		(20,050	)
	NGN	50,050			NGN	50,050

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 8,010,000 NGN on the note payable.
May 1	Sold entire inventory for 16,100,000 NGN on account.
June 1	Sold land for 6,010,000 NGN cash.
Aug. 1	Collected all accounts receivable.
Sept.1	Signed long-term note to receive 8,010,000 NGN cash.
Oct. 1	Bought inventory for 20,010,000 NGN cash.
Nov. 1	Bought land for 3,010,000 NGN on account.
Dec. 1	Declared and paid 3,010,000 NGN cash dividend to parent.
Dec. 31	Recorded depreciation for the entire year of 2,005,000 NGN.

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

2008	NGN 1	=	$	0.0049
2010	1	=		0.0043
August 1, 2016	1	=		0.0063
December 31, 2016	1	=		0.0065
February 1, 2017	1	=		0.0067
May 1, 2017	1	=		0.0069
June 1, 2017	1	=		0.0071
August 1, 2017	1	=		0.0075
September 1, 2017	1	=		0.0077
October 1, 2017	1	=		0.0079
November 1, 2017	1	=		0.0081
December 1, 2017	1	=		0.0083
December 31, 2017	1	=		0.0086
Average for 2017	1	=		0.0076

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

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

Answer 1

a.

Particulars	NGN	Exchange Rate	Amount in $
Net Asset balance 1/1	30,030*	0.0065	$195.20
Add: Increased in net assets(income) :
Profit on inventory sold on 1/5 ($16,100 - $10,100)	6,000	0.0069	$41.40
Gain on land sold on 1/6 ($6,010 - $4,010)	2,000	0.0071	$14.20
Less: Decreased in net assets :
Dividend paid 12/1	3,010	0.0083	$24.98
Recorded Depreciation 31/12	2,005	0.0086	$17.24
Net Asset balance 31/12	33,015		$208.57
Net Asset balance 31/12 at current exchange rate	33,015	0.0086	$283.93
Translation Adjustment to be made-Positive			$75.36

* Working note:

Calculation of Net Asset Balance on 1/1
Particulars	Amount
Cash	15,890
Add: Inventory	10,100
Add: Land	4,010
Add: Building	40,100
Less: Accumulated Depreciation	20,050
Less : Notes Payable	20,020
Net Asset Balance	30,030

b.

Particulars	U.S.$	Exchange Rate	Amount in $
Beginning net monetary liability position	-4,130*	0.0065	-26.845
Add: Increased in monetary assets :
Inventory sold 1/5	16,100	0.0069	111.09
Land sold on 1/6	6,010	0.0071	42.671
Less: Decreased In monetary assets :
Inventory Bought on 1/10	-20,010	0.0079	-158.079
Land bought on 1/11	-3,010	0.0081	-24.381
Dividend paid on 1/12	-3,010	0.0083	-24.983
Ending Net monetary liability position	8,050		80.527
Ending Net monetary liability position at current exchange rate	8,050	0.0086	69.23
Re-measurement gain			11.297

* Working note:

Particulars	Amount
Cash	15,890
Less: Notes Payable	20,020
Beginning net Monetary liability position	-4,130