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Translation of the FS of a Foreign Operation

The document contains financial translation problems involving a foreign subsidiary's accounts and expenses, requiring the calculation of amounts in Philippine Pesos for DNG Company and MBK Inc. It includes specific financial data such as accounts receivable, prepaid insurance, and expenses like depreciation and rent, along with exchange rates for accurate conversion. Additionally, it discusses cumulative translation adjustments for XYZ Corporation's subsidiary, Avenue Company, highlighting the impact of currency fluctuations on financial statements.

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107 views

Translation of the FS of a Foreign Operation

The document contains financial translation problems involving a foreign subsidiary's accounts and expenses, requiring the calculation of amounts in Philippine Pesos for DNG Company and MBK Inc. It includes specific financial data such as accounts receivable, prepaid insurance, and expenses like depreciation and rent, along with exchange rates for accurate conversion. Additionally, it discusses cumulative translation adjustments for XYZ Corporation's subsidiary, Avenue Company, highlighting the impact of currency fluctuations on financial statements.

Uploaded by

summers
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Translation of the FS of a Foreign Operation

Problem 5
Certain Statement of Financial Position accounts in a foreign subsidiary of DNG Company on Dec 31, 2011, have
been translated in Philippine Pesos as follows:
Translated at
Current Rates Historical Rates
Accounts receivable P175,000 P192,500
Prepaid insurance 43,750 52,500
Plant and equipment 87,500 96,250
Patents 70,000 78,750
What total should be included in DNG’s statement of financial position for December 31, 2011, for the above
assets?
a. P376,250 b. P393,750 c. P402,500 d. P420,000

Problem 6
A wholly-owned foreign subsidiary of MBK Inc. has certain expense accounts for the year ended December 31, 2011,
stated in local current units (LCU) as follows:
LCU
Depreciation of equipment (related assets were purchased January 1, 2009) 210,000
Provision for uncollectible accounts 140,000
Rent 350,000

The exchange rates at various dates were as follows:


Peso equivalent of 1 LCU
Jan 1, 2009 P.50
Dec 31, 2011 .40
Average, 2011 .44

What peso amount should be included in MBK’s income statement to reflect the preceding expenses for the year
ended December 31, 2011?
a. P280,000 b. P294,000 c. P308,000 d. P320,600
Problem 7
On January 1, 2011 XYZ Corporation organized Avenue Company as a subsidiary in Hongkong with an initial
investment cost of HK$90,000. Avenue’s Dec 31, 2011, trial balance in HK$ is as follows:

Debit Credit
Cash HK$ 10,500
Accounts receivable (net) 30,000
Receivable from XYZ 7,500
Inventory 37,500
Plant and equipment 150,000
Accumulated depreciation HK$ 15,000
Accounts payable 18,000
Bonds payable 75,000
Common stock 90,000
Sales 225,000
Cost of Goods Sold 105,000
Depreciation expense 15,000
Operating expense 45,000
Dividends paid 22,500
Total HK$ 423,000 HK$ 423,000

Additional information
1. Purchases of inventory goods are made evenly during the year. Items in the ending inventory were
purchased November 1.
2. Equipment is depreciated by the straight-line method within a 10-year life and no residual value. A full-year’s
depreciation is taken in the year of acquisition. The equipment was acquired on March 1.
3. The dividends were declared and paid on November 1.
4. Exchanges rates (direct) were as follows
January 1 P5.30
March 1 5.40
November 1 5.70
December 31 5.00
2010 Average 5.50

Cumulative translation adjustment gain/loss


a. P41,250 loss b. P45,750 gain c. P78,750 loss d. P14,250 loss

Liabilities (CR) 465,000


Common Stock (HR) 477,000
*Retained Earnings 201,750
Translation adjustment (squeezed) (41,250)
Total Liab and Equity / Total Assets (CR) 1,102,500

Alternative computation (Translation adjustment)


Net Assets @ CR [(220,500-93,000)x5] 637,500
Equity (CS @ HR & *RE) 678,750
Translation loss 41,250

*Retained Earnings
RE, beg. 0
NI (60,000 x 5.5) 330,000
Dividends (22,500 x 5.7) (128,250)
RE, end 201,750

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