382 Planning and Forecasting
The explanation for the remeasurement loss of $87 is that balance-sheet
exposure changed from net asset under the all-current method to net a liability
position under the temporal (remeasurement) method. Asset exposure in an
appreciating foreign currency results in a gain. However, liability exposure in
the same circumstance results in a loss. In the all-current example, all assets
and liabilities are translated using the current rate. Asset exposure existed
under the all-current method because assets exceeded liabilities. As a result,
the appreciation of the foreign currency resulted in a growth (gain) in net as-
sets. This gain of $87 was reported as other comprehensive income.
Under the temporal method of remeasurement, balance sheet exposure
isthe net of monetary assets and liabilities. These balance sheet accounts are
EXHIBIT 12.19 Remeasured income statement, year
ended December 31, 2002.
Accounts FC Exchange Rates U.S.$
Sales $1,000 $0.62 $620
Less Cost of sales 600 0.62 372
Gross margin 400 248
Less: SG&A 40 0.62 25
Depreciation 60 0.58 35
Remeasurement loss (Exhibit 12.18) 87
Pretax profit 300 101
Less: tax provision 120 0.62 74
Net income $ 180 $ 27
Other comprehensive income —
Comprehensive income $ 27EXHIBIT 12.20 Remeasured balance sheet, December 31,
2002.
Balance sheet 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
Total assets $2,600 $1,544Accounts payable$ $ 400 0.66 $ 264
Notes payable 1,020 0.66 673
Common stock 1,000 0.58 580
Retained earnings 180 (income statement) 27
Total liabilities and equity $2,600 $1,544