reading26, exhibit 4 question

In reading 26, I am studying exhibit 4, in particular the 2001 all current column where the numbers from a B/S in exhibit 2 were translated using the current method. what i dont understand is WHERE DOES THE R/E # come from??? it goes from 566 to 581 (00–>01), is this simply a plug after you fill in the #s : CTA, CS, and Liabilities??? I understand that i)most accounts are simply converted to the reporting country’s currency, ii)that CS account stays the same iii) the CTA is simply the net assets x forex gain + increase in net assets x forex gain thank you PS what a brutal reading, its taken me 5 hours to get through the first 15 pages, the previous readings were just 2nd nature. this is something else for me. thanx all V.

viktorv, fortunately, the solution is straightforward. First, let’s correct your misinterpretation of the balance sheet accounts. The all-current retained earnings are actually increasing from 457 (FY00) to 581 (FY01). That 566 figure you’ve reprinted is actually the FY01 retained earnings using the temporal method. Notice each fiscal year has two sub-columns, one for temporal and the other for all-current, to help you contrast the differences. Anyway, let’s track the increase in all-current retained earnings from 457 to 581. The increase is 124. So now turn to page 174 which shows Foreign Subsidiary’s translated income statement. Notice that net income for FY01 is 124. There’s neither a cash flow statement nor mention of any dividend payments, so I think we can safely assume no dividends are paid and 100% of those earnings are retained, explaining the delta in the retained earnings account. Mistakes like this mean it’s time for a study break. Pints of Guinness, anyone?

thank you mate, a Guinness is definitely in order! it all makes sense, you increase the CTA and R/E from the appropriate translated accounts, this is where I went wrong. I thought you simply translate the accounts of the subsidiary by multiplying untranslated accounts, like you would do with another account. ty for taking your time to go through this!

another question: under temporal method, exhibit 4, how are the 2001 numbers computed for fixed assets, ac. depreciation inventory I thought that historical rates were supposed to be used for these numbers , I cant figure out which exchange rate they used ! can someone please shed some light ?

i found this stuff in exhibit 6 , nvmd