it 's from schweser practice exam vol1, Exam3 AM, Q50. Balance sheet of Wayward Inc (in LC) --------------------------------------12/31/07------------12/31/08------------correct data Cash + account receivable------5000-----------------5200 Inventory---------------------------3800---------------- 4900 PPE----------------------------------6200-----------------7400 Total assets----------------------15000---------------17500 account payable-----------------2000----------------- 2000 long-term debt------------------ 9000----------------- 9500-----------------9000 equity----------------------------- 4000----------------- 6000-----------------6500 spot rate on 1/1/08: $0.35per LC spot rate on 12/31/08: $0.45 per LC Ave. spot rate during 08: $0.42 per LC 1)With temporal method, how much is the currency translation gain/loss? under temporal method, parent’s exposure= net monetary asset/lia. BEG net monetary lia.=2000+9000-5000=6000 END net monetary lia.=2000+9500-5200=6300 during net monetary lia. increase=6300-6000=300 since LC app., it 's a translation loss= 6000*(0.45-.35)+300*(.45-.42)=609 and it’s reported on income statement. 2)one day later, accounting team reported 2 errors of data of 12/31/08, equity correct data should be 6500, long term debt 9000. how much is the currency translation gain/loss? BEG net monetary lia.=2000+9000-5000=6000 END net monetary lia.=2000+9000-5200=5800 during net monetary lia. increase=5800-6000=-200 since LC app., it 's a translation loss= 6000*(0.45-.35)+(-200)*(.42-.35)=586 can anyone confirm above calculation?
To keep things simple: - find ending retained earnings (RE1) from BS by A = L + Common Equity + RE1; - find net income (NI) from: RE1 = RE0 + NI - D; - find net income before remeasurement G/L (NI_0) from IS; - Remasurement G/L = NI - NI_0. To differentiate this from all-current method translation G/L, keep in mind that temporal method records its G/L in IS, so you begin from BS and work back to IS. For all-current method, its G/L is recorded in BS. So you begin from IS and work back to BS.
So in the second case, your net monetary liability decreases, so it’s a net monetary asset increase. The currency is appreciating it so I think it should be a gain?
eltia Wrote: ------------------------------------------------------- > To keep things simple: > > - find ending retained earnings (RE1) from BS by A > = L + Common Equity + RE1; > > - find net income (NI) from: RE1 = RE0 + NI - D; > > - find net income before remeasurement G/L (NI_0) > from IS; > > - Remasurement G/L = NI - NI_0. > > To differentiate this from all-current method > translation G/L, keep in mind that temporal method > records its G/L in IS, so you begin from BS and > work back to IS. For all-current method, its G/L > is recorded in BS. So you begin from IS and work > back to BS. what if income statement is not given??
TheAliMan Wrote: ------------------------------------------------------- > So in the second case, your net monetary liability > decreases, so it’s a net monetary asset increase. > The currency is appreciating it so I think it > should be a gain? you are part right, monetary asset increased from 5000 to 5200. however, END monetary lia.(2000+9000) >>END monetary asset(5200) it’s still net monetary lia. (5800) and LC app. , it is a translation loss.
annexguy Wrote: ------------------------------------------------------- > 2)one day later, accounting team reported 2 errors > of data of 12/31/08, equity correct data should > be 6500, long term debt 9000. how much is the > currency translation gain/loss? > BEG net monetary lia.=2000+9000-5000=6000 > END net monetary lia.=2000+9000-5200=5800 > during net monetary lia. increase=5800-6000=-200 > the generic formula under both all-current and temporal method: translation gain/loss= change in exposure (LC)*(current rate-ave. rate) + BEG exposure(LC)*(END rate-BEG rate) loss =-200*(.45-.42)+6000*(.45-.35)=594