Chapter 7 International Accounting

Front 1

Name the four translation methods?

Back 1

Current/noncurrent
Monetary/non-monetary
Temporal
Current rate (Closing rate)

Front 2

Describe the current/noncurrent method of translation?

Back 2

current assets and current liabilities are translated at current exchange rate. Non-current A, L, and stock holder's equity accounts are translated at historical exchange rates. This method is NOT allowed under US GAAP or IFRS.

Front 3

Describe the monetary/non-monetary method of translation?

Back 3

Monetary assets(cash & receivables) and liabilities(payables) are translated at the current exchange rates, nonmonetary assets, liabilities, and stockholder's equity accoutns are translated at historical exchange rates.

Front 4

Describe the temporal method of translation?

Back 4

Objective is to produce a set of parent currency translated F/S as if the foreign subsidiary had actually used the parents currency in operations.
A&L reported at historical cost are translated at historical cost. A&L reported at current/future value are translated at current exchange rate.
Cash, receivables, adn most liab. are current values.
Income statement - Revenues & most expenses = average rate, Depreciation/Amortization = historical rate
COGS = Calculate based on inventory

Front 5

Describe the current rate method of translation?

Back 5

All assets & liab. are translated using the current exchange rate. Equity accounts are translated at historical rates.
Income statement = average rate

Front 6

Highly inflationary economies and translation method

Back 6

SFAS 52
100% inflation over a period of three years
Use the temporal method

Front 7

Hyperinflationary economies & translation method

Back 7

IAS 21 requires resatement of foreign F/S for inflation and use of current exchange rate to translate restated F/S.
US GAAP/SFAS 52, determien functional currency and use temporal method when US$ and current method when foreign currency.

Front 8

What translation adjustment is used with each translation method?

Back 8

Temporal method - Gain/Loss in income (remeasurment gain or loss)
Current rate method - separate component of stockholder's equity, cumulative translation adjustment or AOCI

Front 9

Factors considered in determining functional currency

Back 9

1. Currency that influences sales prices for goods and services
2. The currency of ht ecountry whose competitive forces and regulations minaly determien the sales price of its goods and services
3. The currency that mainly influences labor, material, and other costs of providing goods and services
4. The currency in which fudns from financing activities are generated.
5. The currency in which receipts from operating activities are usually retained.
6. Whether the activites of the foreign operation are an extension of the paren'ts or carried out with autonomy.
7. Whether transactions with the parent are a large or small portion of the foreign entity's activiites
8. Whether cash flows generated by the foreign opeartion directly affect the cash flow of the parent and are available to be remitted to the parent.
9. Whether operating cash flows generated by the foreign operation are sufficient to service exisitng or whether the parent will have to service its debt.

Front 10

How do you computer the remeasurment gain/loss for the temporal method?

Back 10

Beg. Monetary assets 1/1/y1
+Increase in monetary items (sales)
-Decrease in monetary items (purchases of inventory, selling and admin expenses, payment of interest, income taxes, purchases of FA, dividneds)
=Net monetary assets/liabilities.

The remeasurment gain or loss is the difference between the cumulative translated net monetary asset/liab already calculated and the total net monetary liab/asset before translation x the current rate.