For all you failures out there, notice this chapter is different this year? It seems we do not have to calculate flow/holding period effects …
Don’t know if I appreciate being called a “failure” but yes, this topic is very much simpler this year. The reading is also written much better.
I am appearing l2 for the first time, but i read the notes from last year, with flow/holding period effects. I still do not know how to calculate translation gain/loss. Here is my understanding: All current: The translation gain/loss hits the BS. and is determined by simply converting IS items at current rate and figuring out the NI. or RE, and then then basically balancing the Assets and Liabilities on the balance sheet. Temporal: The translation gain/loss hits the IS, but to determine it, you have to balance the balance sheet first. But I don’t understand how you balance the balance sheet without knowing the NI, which in turn is dependent on the translation loss/gain. Anyone wanna comment on what to do?
Step 1: Based on your Assets and Liabs. calculate the Equity. Step 2: Common Stock is Historical (you know that) So based on this you have your Retained Earnings Ending Balance. (E - CS) RE End = RE Begin + NI (Plug) - Dividends (Historical, which means as of date of payment). If they have given you the RE Begin figure - you now have your NI Plug figure. Now go and that should be your final figure on the Income statement - based on Avg Sales, Historic COGS, Historic Depreciation, other expenses at Average - you arrive at your NI without the translation figure. You have your NI translated number (final) coming from the BS above. NI Translated - NI w/o translation = IS Gain/Loss due to translation. does that make sense? (Point to note: in most problems they would have stated that the company just started with accounting for the subsidiary - which means RE Begin = 0. And in this case RE End = NI Plug (Assuming no dividends). Otherwise they’d have to give you the RE figure).
Thanks makes sense. Schweser notes have a nasty way of doing this by saying ending exposure - beginning exposure * the difference in exchange rate.