380 Planning and Forecasting
In the absence of dividends, the retained earnings in the balance sheet
are simply the net income for the year. The translation adjustment of $87 is in-
cluded in consolidated shareholders’ equity as accumulated other comprehen-
sive income.The net assets of Foreign Sub are in a currency that appreciated
across the year. This growth in net assets is captured in the process of transla-
tion and represented, again, by the translation adjustment balance. It is com-
mon for the translation adjustment in this case to be referred to as a translation
gain. It resulted because the U.S. parent has a net investment (assets minus li-
abilities) in a country whose currency appreciated against the U.S. dollar.
If, instead, the FC had depreciated, then the translation adjustment
would represent a negative balance in the initial accumulated other compre-
hensive income for 2002. Also, in this circumstance it is common to see the
translation adjustment referred to as a translation loss. With the translation
completed, the above statements in Exhibit 12.16 and 12.17 would now be
ready for consolidation with those of the U.S. parent.^30
The Remeasurement of Statements (Temporal
Translation) Illustrated
This illustration of the remeasurement of the statements of a foreign sub-
sidiary uses the same data as used in the illustration of the all-current transla-
tion method.^31 However, some additional information is required:
- Property and equipment were acquired when the exchange rate was
$0.58. - Depreciation on this property and equipment of FC60 was included in
SG&A expense.
EXHIBIT 12.17 Translated balance sheet, December 31,
2002.
Balance Sheet FC Exchange Rates U.S.$
Cash $ 200 $0.66 $ 132
Accounts receivable 100 0.66 66
Inventory 300 0.66 198
Property and equipment 2,000 0.66 1,320
Total assets $2,600 $1,716Accounts payable $ 400 0.66 $ 264
Notes payable 1,020 0.66 673
Common stock 1,000 0.58 580
Accumulated OCI* 87
Retained earnings 180 112
Total liabilities and equity $2,600 $1,716
* OCI =Other comprehensive income.