Hi guys… can anyone explain why both the fx transaction and translation report into OCI? i thought only translation g/l go into OCI, but they net the transaction and translation here?
The functional currency of Nash, Inc.’s subsidiary is the Swiss franc. Nash borrowed Swiss francs as a partial hedge of its investment in the subsidiary. In preparing consolidated financial statements, Nash’s translation loss on its investment in the subsidiary exceeded its exchange gain on the borrowing. How should the effects of the loss and gain be reported in Nash’s consolidated financial statements?
A. The translation loss less the exchange gain is reported as “other comprehensive income” under one of three alternatives and “accumulated other comprehensive income” in the stockholders’ equity section of the balance sheet.
B. The translation loss less the exchange gain is reported in the income statement.
C. The translation loss is reported separately as “other comprehensive income” and in the stockholders’ equity section of the balance sheet and the exchange gain is reported in the income statement.
D. The translation loss is reported in the income statement and the exchange gain is reported as “other comprehensive income” and in the stockholders’ equity section of the balance sheet.
A is correct. According to ASC Topic 830, translation adjustments resulting from the translation of foreign currency statements should be reported separately as a component of “other comprehensive income” under one of three alternatives and in “accumulated other comprehensive income” in stockholders’ equity. Additionally, gains and losses on certain foreign currency transactions should be reported in the same manner. Those gains and losses which should be excluded from net income and instead reported in “other comprehensive income” and as a component of stockholders’ equity include foreign currency transactions designated as economic hedges of a net investment in a foreign entity. Thus, both the translation loss and the exchange gain are to be reported as “other comprehensive income” and in the stockholders’ equity section of the balance sheet.
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