The Portable MBA in Finance and Accounting, 3rd Edition

(Greg DeLong) #1
Global Finance 381


  1. The ending inventory was acquired at the average exchange rate of $0.62,
    and cost of sales is also made up of goods that were acquired when the ex-
    change rate averaged $0.62.


The previous trial balance is remeasured into the U.S. dollar as shown in
Exhibit 12.18. The income statement and balance sheet, prepared with the re-
measured trial balance data, are presented in Exhibits 12.19 and 12.20.^32
Notice how application of the remeasurement method sharply changes
comprehensive income. Comprehensive income was $199 with translation
under the all-current method but only $27 with the temporal method of re-
measurement. This difference of $85 is explained as follows:


All-current method comprehensive income $199
Reduction in depreciation under temporal method:
FC60 (.62−.58) 2*
Translation gain under the all-current method $(87)
Deduct remeasurement loss under temporal method 87
(174)
Temporal method net income $ 27

*Depreciation was translated at $0.62 as part of SG&A under the all-current method.
However, because the fixed assets, which give rise to the depreciation expense, are trans-
lated at their historical exchange rate of $0.58, the depreciation component of SG&A is
reduced by $2 with remeasurement under the temporal method.

EXHIBIT 12.18 Remeasured trial balance, December 31,
2002.
Accounts FC Exchange Rates U.S.$
Cash $ 200 $0.66 $ 132
Accounts receivable 100 0.66 66
Inventory 300 0.62 186
Property and equipment 2,000 0.58 1,160
Cost of sales 600 0.62 372
SG&A expense 40 0.62 25
Depreciation 60 0.58 35
Tax provision 120 0.62 74
Remeasurement loss 87
Totals $3,420 $2,137

Accounts payable $ 400 0.66 $ 264
Notes payable 1,020 0.66 673
Common stock 1,000 0.58 580
Retained earnings 0 0
Sales 1,000 0.62 620
Totals $3,420 $2,137
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