Could someone walk me through this one?
Because it is the current method, I expected to go through the process of finding retained earnings on the income statement and then bringing it over to the Balance Sheet. Then finding the translation adjustment and then figuring out shareholder’s equity from there. I don’t see an income statement in the answer. How was I supposed to think of this?
Simply take the shareholder’s equity (retained earnings + common stock) and then multiply it by the current exchange rate.
20000 + 8775 = 28775 * 1.3261 = 38158.5
Forget all the other jibberish stuff.
lol I guess that works. I think I need a nap.
But how am I supposed to know when I use that method of translating the information statements. I.E. with Current Method go from the income statement to the balance sheet, and with temporal method go from the balance sheet to the income statement?
I mean that’s got to be important right?
‘pmond’- your approach is correct. With regards to the income statement in the answers, it is shown as a single line adjustment "Net earnings/(loss)- 725 translated at 1.3198 = 957 (since all the numbers are translated at average rate, there is no point showing the full list), which then goes to the B/S. So that equity includes CTA and the loss from income statement.
But Net Income isn’t what you bring over to the B/S, it’s supposed to be retained earnings right? Look at study session 6, reading 19, 3.3. The chart there.
Even in the Method 2 answer they are translating the Actual net asset position via the rate. Maybe I need to just forget all the rest of that jibberish.
Its your choice. Exhibit 4 under section 3.2 clearly states that “Equity” other than retained earnings is at historical rates. Just that in Q22 in AM mock, there is no dividend paid. If it had been paid, they probably would have shown that separately.