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	16,790		Notes payable	NGN	20,380
Inventory		11,900		Common stock		22,300
Land		4,190		Retained earnings		11,150
Building		41,900
Accumulated depreciation		(20,950	)
	NGN	53,830			NGN	53,830

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 8,190,000 NGN on the note payable.
May 1	Sold entire inventory for 17,900,000 NGN on account.
June 1	Sold land for 6,190,000 NGN cash.
Aug. 1	Collected all accounts receivable.
Sept.1	Signed long-term note to receive 8,190,000 NGN cash.
Oct. 1	Bought inventory for 20,190,000 NGN cash.
Nov. 1	Bought land for 3,190,000 NGN on account.
Dec. 1	Declared and paid 3,190,000 NGN cash dividend to parent.
Dec. 31	Recorded depreciation for the entire year of 2,095,000 NGN.

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

2008	NGN 1	=	$	0.0067
2010	1	=		0.0061
August 1, 2016	1	=		0.0081
December 31, 2016	1	=		0.0083
February 1, 2017	1	=		0.0085
May 1, 2017	1	=		0.0087
June 1, 2017	1	=		0.0089
August 1, 2017	1	=		0.0093
September 1, 2017	1	=		0.0095
October 1, 2017	1	=		0.0097
November 1, 2017	1	=		0.0099
December 1, 2017	1	=		0.0101
December 31, 2017	1	=		0.0122
Average for 2017	1	=		0.0112

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?

(Input all amounts as positive. Enter amounts in whole dollars.)

Answer 1

a) Ans:-
Particulars	NGN	Exchange Rate	Amount in $
Net Asset balance 1/1	33,450	0.0083	277.63
Add: Increased in net assets(income) :
Profit on inventory sold 1/5	6000	0.0087	$52.20
Gain on land sold	2000	0.0089	$17.80
Less: Decreased in net assets :
Dividend paid 12/1	3,190	0.0101	32.22
Recorded Depreciation 31/12	2,095	0.0122	25.56
Net Asset balance 31/12	36,165		289.85
Net Asset balance 31/12 at current exchange rate	36,165	0.0122	441.21
Translation Adjustment to be made-Positive			151.36
Therefore, the translation adjustment to be made is $ 151.36
Working Notes:
Calculate net asset Balance:
Calculation of Net Asset Balance on 1/1
Particulars	Amount
Cash	16790
Add: Inventory	11900
Add:Land	4190
Add: Building	41900
Less: Accumulated Depreciation	20950
Less : Notes Payable	20380
Net Asset Balance	33,450
Therefore, the net asset balance as on 1/1 is $33,450

Explanation:

The sum of cash, inventory, land and building is the total assets it is deducted with accumulated depreciation and notes payable to find the net asset balances as on the 1^st January. Hence, the net asset balances is 33,450 NGN. The beginning net asset balance is multiplied with the exchange rate to calculate the amount in dollars. The profit on inventory is 6,000 (17900-11900). The gain on sold land is 2,000 (6190-4190). The dividend paid is 3,190 and depreciation recorded is 2,095.

The beginning net asset balance is added with the profit on inventory, gain on land sold and deducted with the dividend paid, recorded depreciation to calculate the net asset balance in ending period. Then the ending balance is multiplied with the exchange rate as on 31^st December 2017 to find the net asset balance on 31^st December at current exchange rate. The difference between the net asset balance 31/12 and net assets balance 31/12 at current exchange rate is the amount of translation adjustment to made and it is positive. Hence, the translation adjustment to be made is $151.36.

b) Ans:
Particulars	U.S.$	Exchange Rate	Amount in $
Beginning net monetary liability position	(3,590)	0.0083	-29.8
Add: Increased in monetary assets :
inventory sold 1/5	17,900	0.0087	$155.73
land sold on 1/6	6,190	0.0089	$55.10
Less: Decreased In monetary assets :
Inventory Bought on 1/10	(20,190)	0.0097	-195.84
Land bought on 1/11	(3,190)	0.0099	-31.58
Dividend paid on 1/12	(3,190)	0.0101	-32.22
Ending Net monetary liability position	6,070		-78.61
Ending Net monetary liability position at current exchange rate	6,071	0.0122	74.07
Re measurement Gain -4.54
Therefore, the re-measurement gain is $ 4.54
Calculation of beginning net monetary liability position :
Particulars	Amount
Cash	16,790
Less: Notes Payable	20,380
Beginning net Monetary liability position	3,590
Therefore, the beginning net monetary liability position is $3,590

Explanation:

While calculating re-measurement gain only monetary accounts re-measured by using the exchange rate. The inventory sold on 1/5 is 17,900 and land sold on 1/6 is 6,190 are increases the monetary assets. The inventory bought on 1/10 is 20,190, land bought on 1/11 is 3,190 and dividend paid on 1/12 is 3,190 are decreases the monetary assets. So the ending monetary liability position is 6,071 and at current exchange rate is $72.85 (6,071× 0.0122). Hence, the re-measurement gain is $4.54 (6,071 - (6,071 × 0.0122)).

Part a)

Translation adjustment to be made is $ 151.36

Part b)

Re - measurement gain is $ 4.54