【正文】 denominated in kroons) at the start and end of the year and FCU rate decreased. DIS P O S IT IO N O F A CCU M UL A T E D UNR E A L IZED LO S S E ST ot al 90 % c on tr ol 10 % no nc on tr olY ea r 2 tran s l at i on l oss as c al c ul at ed b ef ore 51 ,3 00$ 46 ,1 70$ 5, 13 0$ Y ea r 2 tran s l at i on l oss 13 ,7 40$ 12 ,3 66$ 1, 37 4$ 65 ,0 40$ 58 ,5 36$ 6, 50 4$ 47 Comprehensive Example – SelfSustaining Operations ? Equity method journal entries (p. 591 of text) ? Note that the parent’s retained earnings after translation and consolidation is established by these entries. C as h ( 90% x 10,40 0) 9360O ther c om pr ehe ns i v e i nc om e ( 90% x 51,30 0) 46170 E qui ty ear ni ngs ( 90% x 34,50 0) 31050 Inv es tm ent i n C ontr ol ada 24480T o r ec or d the pa r ent39。 and 2) AOCI (accumulated translation adjustment) on the balance sheet. 34 Comprehensive Example – SelfSustaining Operations ? Equity method journal entries (p. 582 of text) ? Note that the parent’s retained earnings after translation and consolidation is established by these entries. 35 Comprehensive Example – SelfSustaining Operations 36 Comprehensive Example – SelfSustaining Operations 37 Comprehensive Example – Integrated Operations ? Cost of goods sold/change in inventory calculated as follows: 38 Comprehensive Example – Integrated Operations 39 Comprehensive Example – Integrated Operations ? Note: Again, the intuition is that the sub was in a moary liability position at the start and end of the year and FCU rate decreased. 40 Comprehensive Example – SelfSustaining Operations ? Equity method journal entries (p. 586 of text) ? Note that the parent’s retained earnings after translation and consolidation is established by these entries. 41 Comprehensive Example – Integrated Operations 42 Comprehensive Example – Integrated Operations 43 Example – SelfSustaining Operations, Including Both NCI and Acquisition Differential ? We will only illustrate selfsustaining operations. Study the integrated foreign operations example (pp. 593 to 595) yourself. Integrated operations are much easier since acquisition differential translated at historical rates. O n De c em be r 31 , Y ea r 1, S tarm on t, a Can ad i an c om pa ny , a c qu i r ed 90 % of the c om m on s ha r es of Con tr ol od a S A , a n E s ton i an c om pa ny , a t a c os t o f 2,340,000 k r oons . T he ex c hange r ate w as K1 = $ on this date. T he c arr y i ng v al ue of Con tr ol ad a39。 1 Winter 2020 Advanced Financial Accounting RSM 321 Class 11: Translation and Consolidation of the Financial Statements of Foreign Operations 2 Introduction ? Two major accounting questions are posed by the translation to Canadian dollars of subsidiary financial statements presented in a foreign currency: ? What exchange rates are appropriate for each balance? ? How should the resulting exchange gains and losses be reflected in the Canadian dollar financial statements? ? The answers depend on the type of foreign currency exposure the parent faces with the foreign subsidiary 3 Accounting Exposure versus Economic Exposure ? Foreign currency exposure is the risk that a loss (or gain) could occur as a result of changes in foreign exchange rates. ? Foreign currency exposure has three ponents: ? Translation exposure (accounting exposure) ? Transaction exposure ? Economic exposure 4 Accounting Exposure versus Economic Exposure ? Translation exposure – this exposure results from the translation of foreigncurrencydenominated financial statements into Canadian dollars, giving rise to exchange gains and losses ? Only those financial statement items translated at the closing rate or forward rate create an accounting exposure since the Canadian dollar value of those items changes every time the exchange rate changes. These changes are referred to as “translation adjustments”. ? The value of items translated using the historical rate is fixed and does not fluctuate with rate changes ? Positive translation adjustments increase shareholders’ equity。 then, we will illustrate integrated operations. Same case facts will be used for both scenarios. ? Note: for the final exam, you are only responsible for a full consolidation one year after the date of acquisition. O n Dec em be r 3 1, Y ea r 1 , S ta r m on t, a Can ad i an c om pa ny , a c qu i r ed 1 00 % of th e c om m on s ha r es of Con tr ol od a S A , a n E s to ni an c om pa ny , a t a c ost of 2, 00 0, 00 0 k r oo ns. T he e x c ha ng e r at e w as K 1 = $ 0. 12 8 on th i s d at e. T he r e i s n o acqui s i ti on d i f f eren ti al i n th i s e x am pl e.Rel ev an t e x c ha ng e r at es are a s f ol l ow s :Dec em be r 3 1, Y ea r 1 K 1 = $ 0. 12 8Dec em be r 3 1, Y ea r 2 K 1 = $ 0. 10 4A v erag e f or Y ea r 2 K 1 = $ 0. 11 5Date o f p urc ha s e f or i nv en to r y o n ha nd a t e nd of Y ea r 2 K 1 = $ 0. 11 0Date d i v i de nd s d ecl ared K 1 = $ 0. 10 4 30 Comprehensive Example – SelfSustaining Operations 31 Comprehensive Example – SelfSustaining Operations 32 Comprehensive Example – SelfSustaining Operations 33 Comprehensive Example – SelfSustaining Operations ? Again, the intuition is that the sub was in a asset position at the start and end of the year and FCU rate decreased. ? Exchange loss from translation appears in two places in consolidated financial statements: 1) OCI (foreigncurrency translation adjustment) on the ine statement。 s s har e of di v i den ds , i nc om e, and l os s on