Hi. This was not really discussed in the curriculum, but I am just curious as to how forex translation/remeasurement affects the cash flow statement.
See this picture: https://www.dropbox.com/s/68vw72uxhq9fy71/temporal.JPG
I was able to remeasure the IS and BS using temporal method. Can you help me remeasure the CF statement as well? Exchange rates (beg, average, ending) are in the image as well.
Many thanks!
I can’t work on it right now but here’s what i think:
Since most of the items used in the Cash Flow statement are already treated while doing the IS and BS, wouldn’t you just plug their figures from those into the CF? Eg. NCC, we already know the rate @ which we translated depr at. .
found this , (page 11)
It says the remeasurement loss subtracted would also be added back as an NCC. Increase in AR and AP @ average since they are like sales/purchases
The only effect on the cash flow statement is that the foreign currency gain/loss on the income statement (under the temporal method) is a noncash item, so it will subtracted/added to net income when CFO is computed using the indirect method.
The bigger picture is that your cash flow is the same whether you translate or remeasure.
Thanks for the replies.
S2000magician: I tried doing your suggestion. However, the ending cash balance from the cash flow statement using the method that you mentioned does not equal the ending cash balance in my balance sheet. Could you probably use my example to create the remeasured CF statement?
sonofthesoil: I tried using your method (i.e., using average rate for changes in non-cash WC items). However, the ending cash balance from CF statement also would not equal my BS cash balance.
Again, many thanks for your help. I don’t even know why I want to know this–I took L2 this June, and I think I crushed the exam. I just realized this morning that this topic was not really discussed in detail in the curriculum and have been bothered since then.
