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 Inventory Land Building Accumulated depreciation Notes payable Common stock Retained earnings NGN 20,400 22,400 11, 200 NGN 16,800 12,000 4,200 42,000 (21,000) NGN 54,000 NGN 54,000

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:

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

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

Answer 1

Calculate the net asset balance

Balance sheet

Assets Amount ($)in thousands Liabilities Amount($)thousands

Cash 16800 Note payable 20400   

Inventory 12000 Common stock 22400

Land 4200 Retained earnings 11200

Building 42000

Accumulated depreciation (21000)

Total 54000 Total 54000

Calculate the net asset balance

Total assets 54000

Less; Notes payable 20400

Net asset balance 33600

a. Calculation of translation adjustment determined solely for 2017.

    Particulars NGN(A) Exchange rate(B) Amount(c=A*B)

Net asset balance 1/1 $ 33,600,000 0.0084 $ 282,240

Increase in net assets

Sold inventory at a profit 5/1 $ 6000000 0.0088 $ 52800

Sold land at gain 6/1 $ 2000000 0.0090 $ 18000

Decrease in net assets;

Dividend paid 12/1 ( $ 3200000) 0.0102 ( $ 32640)

Depreciation recorded ( $ 2100000) 0.0124 ($ 26040)

Net asset balance 12/31 $ 36,300,000 $ 294360

Net asset balance 12/31 at current

exchange rate $ 36,300,000   0.0124 $ 450120

Translation adjustment ($450120-$294360)   $ 155760

b. Calculation of the re measurement gain or loss

Particulars NGN(A) Exchange rate(B) Amount(c=A*B)

Beginning net monetary liability position $ 540,00,000 $ 0.0084 $ 453600

Increase in net monetary asset;

Sold inventory 5/1 ($ 18,000,000) $0.0088 ($ 158400)

sold land 6/1 ($ 62,00,000) $0.0090 ( $ 55800)

Decrease in net monetary assets;

Bought inventory 10/11 $ 20,200,000 $ 0.0098 $ 197960

Bought land 11/1 $ 3200000 $ 0.0100 $ 32000

Paid dividend 12/31 $ 3200000 $ 0.0102 $ 32640

Ending net monetary liability position $ 56400000 $ 502000

Ending net monetary liability position   $ 56400000 $ 0.0124 $ 699360

at current exchange rate

Re-measurement gain ($699360-502000) $ 197360