Answer to Question #271272 in Accounting for los

Question

The controller of Pane Co. was preparing the company's financial statements. Pane had a wholly owned subsidiary in a foreign country that used the euro as its currency. At December 31, the exchange rate was $1 U.S. for 1.25 euro. The weighted average exchange rate for the year was $1 U.S. for 1.50 euro. At December 31, the subsidiary had assets of 1 million euro and revenue for the year of 2 million euro. What amounts would assets and revenue translate for consolidation?   

Answer 1

Solution:

The translation should be done using the Temporal method.

The temporal method (also known as the historical method) converts a foreign subsidiary's currency into the parent company's currency. This foreign currency translation technique is used when the local currency of the subsidiary differs from the currency of the parent company. Depending on the financial statement item being translated, different exchange rates are used.

 

Assets will be translated using the same rate as at the balance sheet date, which is December 31^st.

Revenue will be translated using the weighted average exchange rate for the year.

 

Assets translation (Eur to U.S.$) = 1,000,000euro $\times$ 1.25 = $1,250,000

 

Revenue translation (Eur to U.S$) = 2,000,000euro $\times$ 1.50 = $3,000,000