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 16,760	Notes payable	NGN  20,320
Inventory	11,600	Common stock	22,000
Land	4,160	Retained earnings NGN	11,000
Building	41,600
Accumulated depreciation	(20,800)
	NGN 53,320		NGN 53,320

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, 160,000 NGN on the note payable.

May 1 Sold entire inventory for 17,600,000 NGN on account.

June 1 Sold land for 6, 160,000 NGN cash.

Aug. 1 collected all accounts receivable. 

Sept.1  Signed long-term note to receive 8, 160,000 NGN cash.

Oct. 1 Bought inventory for 20, 160,000 NGN cash.

Nov. 1 Bought land for 3, 160,000 NGN on account.

Dec. 1 Declared and paid 3,160,000 NGN cash dividend to parent. 

Dec. 31      Recorded depreciation for the entire year of 2,000,000 NGN. 

The US dollar ($) exchange rates for 1 NGN are as follows: 

Answer 1

The question is missing the rates following 0.0092... but assuming the rate was $0.0094 ,  $0.0096 ,  $0.0098 , $0.0118 , $0.0108 respectively we conclude the following answers. 

Part A

Net asset balance = All assets - Liabilities = Cash + Inventory + Land + Building - Accum. Dep. - Notes Payable = 53,320 - 20,320 = 33,000*1000 = 33,000,000 * 0.0080 = 264,000 [rate from December 31]

May 1: Sold inventory 17,600,000 - Inventory (11,600*1000) = 17,800,000 - 11,600,000 =  6,000,000 * 0.0084 May 1 rate = 50,400

Jun 1: Sold Land 6,160,000 - Land (4,160*1000) = 6,160,000-4,160,000 =  2,000,000 *0.0086 = 17,200

Nov. 1: -3,160,000*0.0098=-30,968

Dec. 31: -2,080,000*0.0108=-22,464

Adding 264,000+50,400+17,200-30,968-22,464=278,168

Adding 33,000,000+6,000,000+2,000,000-3,160,000-2,080,000 = 35,760,000 * 0.0118 = 421,968

421,968-278,168=143,800 ANSWER FOR PART A

Part B

Net liab=Notes Payable-Cash=(20,320-16,760)*1000= -3,560,000*0.080 (Dec 31 rate) = -28,480

May 1. Sold inventory = 17,600,000 * 0.0084 (May 1 rate)= 147,840

June 1 Sold land: 6,160,000 * 0.0086 (Jun 1 rate)=52,976

Oct. 1 Bought inventory: -20,160,000 * 0.0094 (Oct. 1 rate) = -189,504

Nov. 1 Land: -3,160,000 * 0.0096 (Nov 1 rate) = -30,336

Dec. 1 Div: -3,160,000 * 0.0098 (Dec 1 rate) = -30,968

-28,480+147,840+52,976-189,504-30,336-30,968=-78,472

-3,560,000+17,600,000+6,160,000-20,160,000-3,160,000-3,160,000 = -6,280,000 * 0.0118 (Dec 31 rate) = -74,104

-74,104+78,472=4,368 ANSWER FOR PART B

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Answer 2

a.Compute translation adjustment	Amount in 000
	Local Currency NGN	Exchange Rate US $	Amount in $
Net asset balance 1/1(total assets - notes payable)	33,000.	0.008	264
Increases in net assets (income)
Sold inventory at a profit 5/1 (NGN 17,600 - 11,600)	6,000.	0.0084	50.4
Sold land at a gain 6/1 (NGN (6160 -$4160)	2,000.	0.0086	17.2
Decreases in net assets
Paid a dividend 12/1	-3160	0.0098	-30.968
Depreciation recorded	-2080	0.0106	-22.048
Net asset balance 12/31	35760		278.584
Net asset balance 12/31 at current exchange rate	35760	0.0116	-414.816
Translation adjustment - positive			-136.232
Translation adjustment  has impact on net assets due Changes in functional currency.	-136.232
Translation adjustment —positive	-136.232
b. Compute remeasurement gain/loss
	Local Currency KM	Exchange Rate US $	Amount in $
Beginning net monetary liability position (purchase of land on account) (3160 - 2000)	-1,160.	0.008	-9.28
Increases in monetary assets:
Sold inventory 5/1	17600	0.0084	147.84
Sold land 6/1	6160	0.0086	52.976
Decreases in monetary assets:
Bought inventory 10/1	-20160	0.0094	-189.504
Bought land 11/1	-3160	0.0096	-30.336
Paid a dividend 12/1	-3160	0.0098	-30.968
Ending net monetary liability position	-3880		59.272
Ending net monetary liability position at current exchange rate	-3880	0.0116	45.008
Remeasurement Loss			14.264
Remeasurement Gain/loss has impact on net monetary assets and liabilities due Changes in functional currency.	14.264
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.