@Zubairs
Foreign Currency Transactions, Translations, and Remeasurements:
Foreign Currency TransACTions: Act NOW, on the SPOT. Report G/L on the Income Statement.
Note that this is only after the title passes for any Open transaction (i.e., on a Receivable or Payable for Shipped goods).
On the other hand, if it's a FORWARD Contract, always use the FORWARD rate to make your adjusting entries.
.
1) Before I get into Foreign Currency Translations/Remeasurements, pardon my French, but you're REtarded if you apply an exchange rate to R.E. (you'll see this in a minute, but Retained Earnings is ALWAYS Calculated; ignore the foreign companies listed “Retained Earnings”)
2) With the Exception of “RELEVANT” Remeasured BS items, Income Statement items are converted using the Weighted Average. (Remeasured BS items use the Historic Rate: Depreciation & PP&E, CGS & Inventory, Amortization of Assets)
3) Common Stock & APIC will ALWAYS use the Historic Rate.
Foreign Currency TransLATE-tions: Recognize G/L LATER. Put it in OCI for now.
1) Translate the entire Income statement using the Weighted Average rate.
Translated Net Income goes directly into the Retained Earnings Statement. (The test will likely not have a Beginning Balance in the RE Statement, so that same amount will go the the Balance Sheet too.)
2) Translate the Balance Sheet: (CS & APIC: Historic, Assets & Liabilities: Current, RE: Don't be REtarded)
– ONLY Common Stock & APIC use the Historic Rate. (CS & APIC are ALWAYS Historic, regardless of the Method. They're history; keep it that way.)
– Assets & Liabilities use the Current Rate.
– RETAINED EARNINGS IS ALWAYS CALCULATED, DON'T TOUCH IT! (You Rolled it over when you calculated Net Income, remember?)
-PLUG AOCI: Assets = Liabilities + Equity. Plug AOCI (Equity) to make it work.
.
RE-M-easurement: “M-C Hammer” is trying to stay Relevant internationally.
1) Start with the Balance Sheet:
– “M-C”: ‘M'onetary Assets = ‘C'urrent Rate
– “H”: Non-Monetary Assets = ‘H'istoric Rate
– PLUG #1) Retained Earnings: Assets = Liabilities + Equity. Make it work. (DON'T be REtarded! RE is ALWAYS Calculated)
Transfer your CALCULATED Retained Earnings to the Income Statement. That will be your “Net Income” on the Income Statement. This will be VERY important later, because it will determine your Gain on Remeasurement (i.e., PLUG #2)
2) Go to the Income Statement. (Now remember ‘MC Hammer' is really trying to stay ‘Relevant'.)
– If an Income Statement item is ‘Relevant' to a Balance Sheet Item, it uses the ‘H'istoric Rate.
– Non-BS items use the Weighted Average Rate.
-PLUG #2) REMEASUREMENT GAIN: ‘Net Income' – (Revenues – Expenses) = GAIN on the Income Statement (duh).
.