Foreign Currency Accounting

  • This topic has 4 replies, 4 voices, and was last updated 13 years ago by Anonymous.
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  • #169606
    Anonymous
    Inactive

    Can someone help me understand the concept of reporting currency and functional currency on how they all tie together? I’m trying to review over this and I don’t think Becker does a good job going over it or it’s just not clicking for me. Examples would be appreciated also. Thanks!

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  • #339817
    Texas27
    Member

    Just know this…

    If the reporting currency of the subsidiary is the local currency where the sub is located then the currency is considered functional and you will use the translation method. Example of this would be a US Parent owns a subsidiary in Mexico and the subsidiary reports their financial statements in Pesos. Therefore, the US Parent must use the translation method to report the assets/liabilities of the sub in their consolidated financial statements.

    If the reporting currency of the subsidiary is not the local currency where the sub is located then the currency is considered dysfunctional and you would use the remeasurement method. An example of this would be if A US Parent owns a subsidiary that is headquartered in Mexico but all of their stores are located in Switzerland so their financial statements are denominated in the Swiss Franc. Therefore, the US Parent must use the remeasurement method to report the assets/liabilities and income of the sub in the consolidated financial statements.

    Hope this helps a little bit…

    BEC - Feb 2012: 80
    AUD - Feb 2012: 84
    FAR - Apr 2012: 78
    REG - May 2012: 90

    Thanks Becker!

    #339818
    Anonymous
    Inactive

    Thanks! It helped a lot.

    #339819
    Excited_CPA
    Member

    @CPAski

    I just finished reading this chapter too and spent some time trying to understand it.

    A good way of remembering it for me was the mnemonic RBI (Remeasurement, Balance Sheet First, Income Statement Second). And if you do the Balance Sheet first, then the difference has to be plugged into the Income Statement. Dunno if this extra tidbit will help.

    Good luck!

    BEC 04/14/12 87
    FAR 08/28/12 88
    AUD 10/06/12 94
    REG 02/09/13 91

    #339820
    Anonymous
    Inactive

    Great explanations above!!

    If you need extra tips: https://www.another71.com/cpa-exam-forum/topic/remeasurement-vs-translation-2

    I was having hard time with this as well, but thanks to A71 peeps, it's making sense:!)

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