[lindjlny]

I do not understand Becker’s explanation for this

question. Does someone have another way to explain this? If so, can you please use countries in your explanation, I’m going crazy….

A balance arising from the translation or remeasurement

of a subsidiary’s foreign currency financial statements

is reported in the consolidated income statement when the

subsidiary’s functional currency is the:

Foreign currency/U.S. dollar

a. No/No

b. No/Yes

c. Yes/No

d. Yes/Yes

Explanation

Choice “b” is correct. A subsidiary’s financial

statements are usually maintained in its local currency.

If the subsidiary’s functional currency is its local

currency, the subsidiary’s financial statements are

simply “translated” to U.S. dollars (the reporting

currency). The resulting adjustment is reported as other

comprehensive income. If the subsidiary’s functional

currency is not the same as its local currency (the

functional currency may be the U.S. dollar or a 3rd

currency), the subsidiary’s financial statements must be

“remeasured” into the functional currency. The resulting

gain or loss on remeasurement is reported in the

consolidated income statement.

[futuremdcpa]

Dont feel too bad.. I went over foreign currency/transactions TWICE! I still don't understand it..

REG: PASS || BEC: PASS || AUD: PASS || F: SCORE PENDING..

[lindjlny]

hahaha

[Mjs157]

A balance arising from the translation or remeasurement of a subsidiary's functional currency financial statements is reported in the consolidated income statement when the subsidiary's functional currency is the:

Foreign currency/U.S. dollar

a. No/No

b. No/Yes

c. Yes/No

d. Yes/Yes

Re-measurement is the key word. As stated in the solution if the subsidiaries foreign currency is the local currency (european sub using the Euro) then the financial statements are translated to the US dollar, with the difference going to OCI as “foreign currency translation adjustment”. The Other Comprehensive Income can be a separate statement, or merged into the balance sheet as a line item in the retained earnings section. So the question asked about a re-measurement in the INCOME STATEMENT (cap for emphasis to avoid confusion – I know this is difficult). Income statement adjustments arise from when the foreign subsidiary does not use the local currency (typically a low-volume to no-trading, or high-inflationary currency) and the foreign sub typically uses the parent's functional currency (USD). This adjustment goes to the consolidated income statement as a line item.

A separate issue, but important seeing that you are on the topic of foreign subsidiary consolidation, is to remember the difference between translation and transaction. For example, a subsidiary has an amount due to the parent in the coming year that must be paid in USD. The Euro has weakened against the USD so the cost of paying the loan increased, this currency translation adjustment goes to the income statement, because the settlement date of the loan is known and current.

I hope this helped!

[lindjlny]

Thank you very much for your explanation. The only problem I'm having know is understanding the difference between between translation and remeasurement.

Let's say that a US based company has a sub in Germany (I know if remeasurement is required than the US must be the reporting currency and the functional currency). Does the term remeasurement mean that the sub in Germany must convert IFRS into GAAP? Once that is done than the EURO must be translated into the USD?

[Author]

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