【正文】 ue of items translated using the historical rate is fixed and does not fluctuate with rate changes ? Positive translation adjustments increase shareholders’ equity。 negative translation adjustments decrease shareholders’ equity 5 Accounting Exposure versus Economic Exposure ? Translation exposure (summary): ? Note that gains and losses that result from translation are usually unrecognized in the sense they do not represent actual cash flows. It is important to assess if these gains/losses represent transaction and/or economic exposure. 6 Accounting Exposure versus Economic Exposure ? Transaction exposure – this exposure represents the foreign exchange loss or gain that can occur between the time of entering a transaction (. sale or purchase) involving a foreign currencydenominated receivable or payable, and the time of settling it in cash with the customer or vendor ? Refer to discussion and example in Chapter 10 ? The resulting cash gains and losses are realized and affect the enterprise’s cash flows, working capital, and earnings 7 Accounting Exposure versus Economic Exposure ? Economic exposure – Represents a longerterm risk to the parent that the overall value of its investment in a foreign subsidiary will change (decrease or increase) as a result of exchange rate fluctuations. Economic exposure varies depending on how closely linked the activities of the parent are to the subsidiary 8 Translation Methods ? IAS 21 provides two methods of translating subsidiary financial statements, described using their traditional Canadian GAAP names: ? Temporal method ? Current rate method ? The translation method used should reflect the parent’s exposure to exchange rate changes ? The temporal method is used if the parent is closely linked to the subsidiary with the same functional currency and therefore has transaction exposure ? The current rate method is used if the subsidiary is less closely linked with the parent and uses a different functional currency, and therefore has economic exposure 9 Translation Methods Temporal ? The temporal method ? Reflects parent’s close involvement with subsidiary and its cash flows by measuring exposure to moary assets and liabilities ? Uses the Canadian dollar as the underlying unit of measure, producing the same result as if the transaction had occurred in Canada in the first place ? All moary items are translated at the balance sheet closing rate ? All nonmoary Items carried at fair value are translated at the closing rate on the date when the fair value determination was made ? Nonmoary items are translated at applicable historical rates (generally, the rate on the date of acquisition of the item) ? Exchange gains and losses are recorded in ine 10 Translation Methods Temporal ? Moary items represent money and claims to money the value of which, in terms of the moary unit, whether foreign or domestic, is fixed by contract or otherwise ? Payables and receivables and all other fixed claims to money are moary items。 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 ne t a s s ets w ere eq ua l to f ai r v al ue son th i s da te ex c ep t f or a pa ten t, w hi c h h ad a f ai r v al ue of K 60 0,0 00i n e x c es s of c arr y i ng am ou nt. T he pa ten t h ad a r em ai ni ng us ef ul l i f e o f 10 y ea r s an d n o res i du al v al ue at th e d ate of ac qu i s i ti on . Rel ev an t e x c ha ng e rates ( s am e a s 10 0% ex am pl e) ar e a s f ol l ow s :Dec em be r 31 , Y ea r 1 K 1 = $0 .12 8Dec em be r 31 , Y ea r 2 K 1 = $0 .10 4A v erage f or Y ea r 2 K 1 = $0 .11 5Date of pu r c ha s e f or i nv en tory on ha nd at en d of Y ea r 2 K 1 = $0 .11 0Date di v i de nd s de c l ared K 1 = $0 .10 4 44 Example – SelfSustaining Operations, Including Both NCI and Acquisition Differential T he f ol l ow i ng c al c ul ati on of th e a c qu i s i ti on di f f erenti al i n k r oo ns an d Ca na di an do l l ars on Dec em be r 31 , Y ea r 1, i s m ad e t o p r ep are the ac qu i s i ti on da te c on s ol i da ted ba l an c e s he et:Cos t o f 90 % i nv es tm en t K 2, 34 0,0 00 299,520$ Im pl i ed v al ue of 10 0% K 2, 60 0,0 00 332,800$ B oo k v al ue of s ub s i di ary 39。 s s har e of di v i den ds , i nc om e, and l os s on