Question

No hand writing please

Board Company has a foreign subsidiary that began operations at the start of 2015 with assets of 135,000 kites (the local currency unit) and liabilities of 60,000 kites. During this initial year of operation, the subsidiary reported a profit of 29,000 kites. It distributed two dividends, each for 5,300 kites with one dividend declared on March 1 and the other on October 1. Applicable exchange rates for 1 kite follow: January 1, 2015 (start of business) March 1, 2015 Weighted average rate for 2015 October 1, 2015 December 31, 2015 $ 0.72 0.70 0.69 0.68 0.67 a. Assume that the kite is this subsidiary's functional currency. What translation adjustment would Board report for the year 2015? Negative Translation adjustment

Answer 1

Answer:

a)

	Kites	Exchange Rate	U.S Dollars
Net Asset balance 1/1	75000	0.72	54000
Net Income	29000	0.69	20010
Dividends 3/1	(5300)	0.70	(3710)
Dividends 10/1	(5300)	0.68	(3604)
Ending Net Asset Balance 12/31	93400		66696
Ending Net Asset value	93400	0.67	(62578)
Translation Adjustment 2013			4118

Working Notes:

Beginning Net Assets = (135000-60000)*0.72 = 54000
Net Income = 29000*0.69 = 20010
Dividend payment for 3/1 = (5300)*0.70 = (3710)
Dividend payment for 10/1 = (5300)*0.68 = (3604)
Value = 93400*0.67 = 62578

b)

Date	Particulars	Debit ($)	Credit ($)
1-Oct	No entry
31-Dec	Forward Contract	2300
	Translation Adjustment		2300
31-Dec	Foreign Currency	154100
	Cash		154100
31-Dec	Cash	156400
	Foreign Currency		154100
	Forward Contract		2300

Working Notes:

Value = 230000 kites x 0.67 = 154100
value = 230000 kites x 0.68 = 156400
Adjustment = 154100-156400 = (2300)

c)

AOCI = Translation Adjustment - Forward Contract
=4118-2300
=1818

This is negative amount since the Forward contract is less than the translation adjustment