Question

Board Company has a foreign subsidiary that began operations at the start of 2017 with assets of 148,000 kites (the local currency unit) and liabilities of 86,000. During this initial year of operation, the subsidiary reported a profit of 42,000 kites. It distributed two dividends, each for 6,600 kites with one dividend declared on March 1 and the other on October 1. Applicable exchange rates for 1 kite follow:

January 1, 2017 (start of business)	$0.85
March 1, 2017	0.83
Weighted average rate for 2017	0.82
October 1, 2017	0.81
December 31, 2017	0.80

a. Assume that the kite is this subsidiary’s functional currency. What translation adjustment would Board report for the year 2017?

b. Assume that on October 1, 2017, Board entered into a forward exchange contract to hedge the net investment in this subsidiary. On that date, Board agreed to sell 155,000 kites in three months at a forward exchange rate of $0.81/1 kite. Prepare the journal entries required by this forward contract.

1. Record the entry for the Board being entered into a forward exchange contract.

2. Record the change in the value of the forward contract.

3. Record the purchase of foreign currency.

5. Record the delivery of the foreign currency and the closing of forward contract account.

c. Compute the net translation adjustment for Board to report in accumulated other comprehensive income for the year 2017 under this second set of circumstances.

Answer 1

Answer :- a)

Translation Adjustment in Board Report.

Translation adjustment is a key part of the Financial statement consolidation process.

for this Remeasure the financial statements of the foreign entity into the reporting currency of the Parent Company and Record the Gains and Losses on the translation of currency.

Translation of Financial Statement

1) Assets and Liabilities :- Current Exchange Rate at the Balance Sheet Date. But if there is difference Balance date then reporting entity use the Exchange rate in effect as of the Foreign entity's Balance Sheet Date.   

2) Incomes & Losses :- Revenues, expenses, losses and gains using the exchange rate as of the dates when those items were Originally Recognised. and allocation of expenses and revenues using the exchange rate in effect when those allocations are recorded.