Question

Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with...

Zugar Company is domiciled in a country whose currency is the dinar. Zugar begins 2017 with three assets: cash of 20,100 dinars, accounts receivable of 80,100 dinars, and land that cost 201,000 dinars when acquired on April 1, 2016. On January 1, 2017, Zugar has a 151,000 dinar note payable, and no other liabilities. On May 1, 2017, Zugar renders services to a customer for 121,000 dinars, which was immediately paid in cash. On June 1, 2017, Zugar incurred a 101,000 dinar operating expense, which was immediately paid in cash. No other transactions occurred during the year. Currency exchange rates for 1 dinar follow: April 1, 2016 $0.34 = 1 dinar January 1, 2017 0.37 = 1 May 1, 2017 0.38 = 1 June 1, 2017 0.40 = 1 December 31, 2017 0.42 = 1 Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the dinar is the subsidiary’s functional currency. What is the translation adjustment for this subsidiary for the year 2017? Assume that Zugar is a foreign subsidiary of a U.S. multinational company that uses the U.S. dollar as its reporting currency. Assume also that the U.S. dollar is the subsidiary’s functional currency. What is the remeasurement gain or loss for 2017? Assume that Zugar is a foreign subsidiary of a U.S. multinational company. On the December 31, 2017, balance sheet, what is the translated value of the Land account? On the December 31, 2017, balance sheet, what is the remeasured value of the Land account? (Input all amounts as positive.)

Homework Answers

Answer #1

Dinars Dollars

Sales 121000 121000*0.38= 45980

Operating expense 101000 101000*0.4 =40400

Net profit 20000 5580

Cash a/c (translation account) 20100*0.05 (0.42-0.37) 1005

Trade receivables 80100*0.05 4005

Land 201000 * 0.08 (0.42-0.34) 16080

Payables -151000 * 0.05 (0.42-0.37) -7550

Translation account adjustment amount (gain) 13450

Subsidary reporting in foreign currency

Land 0 = no fluctuation change as non monetaryitems carried at historical cost

Cash a/c (translation account) 20100*0.05 (0.42-0.37) 1005

Trade receivables 80100*0.05 4005

Payables -151000 * 0.05 (0.42-0.37) -7550

Remeasurement loss for 2017 -2540

C Assuming Zugar is a foreign subsidary, all balance sheet items need to be reported at the rate as on the last day.

opening balance of land Jan 2017 = 201000*0.37 = 74370

Balance to be reinstated on dec 31 2017 = 74370*0.42/0.37 = 84420

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