Question

TOP Co. started 2018 with two assets: Cash of §26,000 (Stickles) and Land that originally cost §72,000 when acquired on April 4, 2015. On May 1, 2018, the company rendered services to a customer for §36,000, an amount immediately paid in cash. On October 1, 2018, the company incurred an operating expense of §22,000 that was immediately paid. No other transactions occurred during the year so an average exchange rate is not necessary. Currency exchange rates were as follows:

April 4, 2015

§1 = $.28

January 1, 2018

§1 = $.29

May 1, 2018

§1 = $.30

October 1, 2018

§1 = $.31

December 31, 2018

§1 = $.35

1. Assume that TOP was a foreign subsidiary of a U.S. multinational company and the stickle (§) was the functional currency of the subsidiary. Calculate the translation adjustment for this subsidiary for 2018 and state whether this is a positive or a negative adjustment.

2. Assume TOP was a foreign subsidiary of a U.S. multinational company and the U.S. dollar was the functional currency of the subsidiary. Prepare a schedule of changes in the net monetary assets of TOP for the year 2018 and properly label the resulting gain or loss.

Answer 1

Transactions during the year
		In TOP Books	Conversion rate	USD Amounts In Holding company
Cash for services rendered		36000	0.3	10800
Cash Paid operating expenses		22000	0.31	6820
Net income		14000		3980
Cash @ 31 deec 2018
Opening balance	26000		0.29	7540
receipts	36000			3980
expenses	-22000			11520
Cash @ end	40000	40,000	0.35	14000
			Net gain on cash	2480
Land on 1 april 2015		72000	0.28	20160
Land on 31 dec 2018		72000	0.35	25200
			Gain on asset	5040
		Total tanslation adjustment(Gain)		7520
Transactions during the year
		In TOP Books	Conversion rate	USD Amounts in TOP
Cash for services rendered		36000	0.3	10800
Cash Paid operating expenses		22000	0.31	6820
Net income		14000		3980
Cash @ 31 deec 2018
Opening balance	26000		0.29	7540
receipts	36000			3980
expenses	-22000			11520
Cash @ end	40000	40,000	0.35	14000
			Net gain on cash	2480
Land on 1 april 2015		72000	0.28	20160
Land on 31 dec 2018		72000	0.35	25200
			Gain on asset	5040
		Total tanslation adjustment(Gain)		7520