The Portable MBA in Finance and Accounting, 3rd Edition

378 Planning and Forecasting

historical exchange rates. These procedures are followed when translation (re-
measurement) follows the temporal method.
Translation under the all-current method and remeasurement under the
temporal method are illustrated next.

The All-Current Translation Method Illustrated

Following the guidance in Exhibit 12.14, the all-current translation method is
illustrated using the data below:

1. Foreign Sub is formed on January 1, 2002 with an initial funding from a
   stock issue that raised FC1,000 (FC=Foreign current units).


2. Selected exchange rates for 2002:
   Direct Exchange Rates
   At January 1, 2002 $0.58
   Average for 2002 0.62
   At December 31, 2002 0.66

The above rates indicate the amount of U.S. currency required to

equal (buy) a single unit of the foreign currency. The increase in the rate

across the year means that the dollar has lost value and that the foreign

currency has appreciated.

3. The trial balance of Foreign Sub, both in FC and in U.S. dollars and
   translated following the all-current rule, is given in Exhibit 12.15. Those
   accounts that would have debit balances, assets and expenses, are

EXHIBIT 12.15 Trial Balance in FC and translated US$ at

December 31, 2002.

Accounts FC Exchange Rates U.S.$

Cash $ 200 $0.66 $ 132

Accounts receivable 100 0.66 66

Inventory 300 0.66 198

Property and equipment 2,000 0.66 1,320

Cost of sales 600 0.62 372

SG&A expense 100 0.62 62

Tax provision 120 0.62 74

Totals $3,420 $2,224

Accounts payable $ 400 0.66 $ 264

Notes payable 1,020 0.66 673

Common stock 1,000 0.58 580

Retained earnings 0 0

Translation adjustment 0 87

Sales 1,000 0.62 620

Totals $3,420 $2,224