國(guó)際會(huì)計(jì)第七版英文版課后答案(第六章)

1、Chapter 6Foreign Currency TranslationDiscussion Questions Solutions1. Foreign currency translation is the process of restating a foreign account balance from one currency to another. Foreign currency conversion is the process of physically exchanging one currency for another.2. In the foreign exchan

2、ge spot market, currencies bought and sold must be delivered immediately, normally within 2 business days. Thus a Singaporean tourist buying U.S. dollars at the airport before boarding a plane for New York would hand over Singapore dollars and immediately receive the equivalent amount in U.S. dollar

3、s. The forward market handles agreements to exchange a fixed amount of one currency for another on an agreed date in the future. For example, a French manufacturer exporting goods invoiced in euros to a Japanese importer on 60day credit terms would buy a forward contract to sell yen for euros 2 mont

4、hs in the future. Transactions in the swap market involve the simultaneous purchase (or sale) of one currency in the spot market and the sale (or purchase) of the same currency in the forward market. Thus, a Canadian investor wishing to take advantage of higher interest rates on 6-month Treasury bil

5、ls in the United States would buy U.S. dollars with Canadian dollars in the spot market and invest in the United States. To guard against a fall in the value of the U.S. dollar before maturity (when the U.S. dollar proceeds are converted back to Canadian dollars), the Canadian investor would simulta

6、neously enter into a forward contract to sell U.S. dollars for Canadian dollars 6 months in the future at today s forward exchange rate.3. The question refers to alternative exchange rates that are used to translate foreign financial statements. Thecurrent rate is the exchange rate at the financial

7、statement date. It is sometimes called theyear-endor closingrate. Thehistorical rate is the exchange rate at the time of the underlying transaction. Theaveragerate is the average of various exchange rates during a fiscal period. Since the average rate normally is used to translate income statement i

8、tems, it is often weighted to reflect any seasonal changes in the volume of transactions during the period. Translation gains and losses do not occur if exchange rates do not change. However, if exchange rates change, the use of current and average rates causes translation gains and losses. These do

9、 not occur when the historical rate is used because the same (constant) rate is used each period.4. In this example, the Mexican Affiliate s Canadian dollar loan is denominated in Canadian dollars. However, because the Mexican affiliates functional currency is U.S. dollars, the peso equivalentof the

10、 Canadian dollar borrowing would be remeasured in U.S. dollars prior to consolidation. If the Mexican affiliate s functional currency were the peso, the Canadian dollar loan would be remeasured in pesos before being translated to U.S. dollars.5. A transaction gain or loss occurs when a foreign curre

11、ncy transaction, e.g., a foreign currency borrowing, is settled at a different exchange rate than that which prevailed when the transaction was originally incurred. In this case there is an exchange of one currency for another. A translation gain or loss, on the other hand, is simply the result of a

12、 restatement process. There is no physical exchange of currencies involved.6. It is not possible to combine, add, or subtract accounting measurements expressed in different currencies; thus, it is necessary to translate those accounts that are measured or denominated in a foreign currency into a sin

13、gle reporting currency. Foreign currency translation can involve restatement or remeasurement. In restatement, the local (functional) currency is kept as the unit of measure; that is, the translation process multiplies the financial results and relationships in the local currency accounts by a const

14、ant, the current rate. In contrast, remeasurement translates local currency results as if the underlying transactions had taken place in the reporting (functional) currency of the parent company; for example, it changes the unit of measure of a foreign subsidiary from its local (foreign) currency to

15、 the U.S. dollar.7. Major advantages and limitations of each of the major translation methods follow.Current Rate MethodAdvantages:a. Retains the initial relationships in the foreign currency statements.b. Simple to apply.Limitations:a. Violates the basic purpose of consolidation, which is to presen

16、t the results of a parent and its subsidiaries as if they were a single entity.b. Inconsistent with historical cost.c. Presumes that all local assets and liabilities are subject to exchange risk.d. While stockholders equity adjustments shield an MNC s bottom line from translation gains and losses, s

17、uch adjustments could distort certain financial ratios and be confusing.Current-noncurrent MethodAdvantages:a. Distortions in translated gross margins are reduced as inventories and translated at the current rate.b. Reported earnings are shielded from the distorting effects of currency fluctuations

18、as excess translation gains are deferred and used to offset future translation losses.Limitations:a. Uses balance sheet classification as basis for translation.b. Assumes all current assets are exposed to exchange risk regardless of their form.c. Assumes long-term debt is sheltered from exchange rat

19、e risk.Monetary-nonmonetary MethodAdvantages:a. Reflects changes in domestic currency equivalent of long-term debt on a timely basis. Limitations:a. Assumes that only monetary assets and liabilities are subject to exchange rate risk.b. Exchange rate changes distort profit margins as sales transacted

20、 at current prices are matched against cost of sales measured at historical prices.c. Uses balance sheet classification as basis for translation.d. Nonmonetary items stated at current market values are translated at historical rates. Temporal MethodAdvantages:a. Theoretically valid: compatible with

21、any accounting measurement method.b. Has the effect of translating foreign subsidiaries operations as if they were originally transacted in the home currency, which is desirable for foreign operations that are extensions of the paresnat ctivities. Limitation:a. A company increases its earnings volat

22、ility by recognizing translation gains and losses currently. In arguing for one translation method over another, your students should eventually realize that, in the present state of the art, there is probably no one translation method that is appropriate for all circumstances in which translations

23、occur and for all purposes that translation serves. It is probably more fruitful to have students identify circumstances in which they think one translation method is more appropriate than another.8. The current rate method is appropriate when the foreign entity being consolidated is largely indepen

24、dent of the parent company. Conditions which would justify this methodology is when the foreign affiliate tends to generate and expend cash flows in the local currency, sells a product locally so that its selling price is largely insulated from exchange rate changes, incurs expenses locally, finance

25、s its self locally and does not have very many transactions with the parent company. In contrast, the temporal method seems appropriate in those instances when the foreign affiliate operations are integrally related to the parent company. Conditions which would justify use of the temporal method are

26、 when the foreign affiliate transacts business in the parent currency and remits such cash flows to the parent company, sells a product largely in the parent country and whose selling price is sensitive to exchange rate changes, sources its factor inputs from the parent company, receives most of its

27、 financing from the parent and has a large two way flow of transactions with it.精品9. The history of foreign currency translation in the United States suggests that the development of accounting principles does not depend on theoretical considerations so much as on political, institutional, and econo

28、mic influences that affect accounting standard setting. It may be more realistic to recognize that theoretically sound solutions are impossible as long as policy prescriptions are evaluated on practical grounds. Without specific choice criteria derived from investor decision models, it is fruitless

29、to argue the conceptual merits of competing accounting treatments. It is far more productive to admit that foreign currency translation choices are simply arbitrary.Readers of consolidated financial statements should know that the foreign currency translation method used is one of several alternativ

30、es, and this should be disclosed. This approach is more open and reduces the chance that readers will draw misleading inferences.10. Foreign inflation, in particular, the differential rate of inflation between the country in which a subsidiary is located and the country of its parent determines fore

31、ign exchange rates. These rates, in turn, are used to translate foreign currency balances to parent currency.11.In the United Kingdom, financial statements of affiliates domiciled in hyperinflationary environments must first be adjusted to current price levels and then translated using the current r

32、ate; in the United States, the temporal method would be employed. The second part of this question is designed to get students from abroad to find out what companies in their home countries are doing and thereby be in a position to share their new found knowledge with their classmates. They need sim

33、ply get on the internet and read the footnotes of a major multinational company in their home country.12. Under FAS No. 52, the parent currency is designated as the functional currency for an affiliate, whose operations are considered to be an integral part of the parent compasnyoperations. Accordin

34、gly, anything that affects consolidated earnings, including foreign currency translation gains and losses, is relevant to parent company shareholders and is included in reported earnings. In contrast, when a foreign affiliate s operations are independent of the parent s, the local currency is design

35、ated as its functional currency. Since the focus is on the affiliate s local performance, translation gains and losses that arise solely from consolidation are irrelevant and, therefore, are not included in consolidated income.Exercises Solutions1. 250,000,000 X .008557 = $2,139,250. 250,000,000- 11

36、6.86 = $2, 139,312The difference is due to rounding.2. Si nee 1 = US$1.9590 and ?1 = US$1.3256,Alternatively, ?1 = US$1.3256/US$1.9590 = 1 = US$1.9590/US$1.3256 = ?1.4778. .6767.3. Single Transaetion Perspeetive:4/1 Purehases ( 32,500,000/ 116.91)CashA/P( 32,500,00-0 3,250,000)/ 116.91(Credit pureha

37、se)$277,992$27,800250,192刀1 Purchases( 29,250,000/ 1299250,00-/ 115.47)3,120A/P3,120(To record increase in purchases due to yen appreciation)7/1 Interest expense( 29,250,000 X .08 X 3/12)/ 1155.4,0766A/P( 29,250,000/ 115.47)253,312Cash258,378(To record settlement)Two Transactions Perspective:4/1 Pur

38、chases Cash A/P7/1 Transaction loss A/P7/1 Interest expenseA/PCash$277,992$27,800250,1923,1203,1205,066253,312258,3784. a. MXN 1,750,000/MXN10.3 = C$169,903.b. The Canadian dollar equivalent of the Mexican inventory account would not change if the functional currency was the Canadian dollar as the t

39、emporal method translates inventory, a nonmonetary asset, at the exchange rate that preserves its original measurement basis. Since inventory is being carried at its net realizable value, it would be translated at thecurrent rate. Had inventory been carried at historical cosuld have been translated

40、at the historical rate or MXN3,750,000/MXN9.3 = C$403,226.5. Baht is the fun cti onal curre ncy:B 2,500,000/20 years = B 125,000=3,378=6,757B 125,000/B37B 5,000,000/20 years = B 250,000B 250,000/B37U.S. dollar is the functional curre ncy:B 2,500,000/20 years = B 125,000B 125,000/B40=3,125B 5,000,000

41、/20 years = B 250,000B 250,000/B38=6,579Total depreciation$9,7046. If the euro is the Germa n subsidiary unctfonal curre ncy, its accou nts would be tra nslated into Australia n dollars using the curre nt rate method. In this case the tran slati on gain of AUD4,545,455 would appear in con solidated

42、equity. Thus the only item affect ing curre nt in come would be the tran sacti on loss(loss on an un settled tran sacti on) of AUD1,514,515 on the euro borrowi ng.If the Australian dollar is deemed to be the functional currency, then the transaction loss andtranslation gain would both appear in repo

43、rted earnings as follows:AUD(1,514,515) transaction lossAUD4,545,455 tran slatio n gainAUD3,030,940 net foreig n excha nge gain7.U.S. DollarU.S. DollarU.S.DollarBefore CNYAfter CNYAfter CNYAppreciationAppreciationDepreciationCNY Balance Sheet($.12=CNY1)($.15 = CNY1)($0.09 = CNY1)AssetsAmountCurrentM

44、onetaryCurrentMonetaryNoncurrentNonmonetaryNoncurrentNonmonetaryCashNT5,000$600$ 750$ 750$ 450$ 450Accts. Receivable14,0001,6802,1002,1001,2601,260Inventories(cost=24,000)22,0002,6403,3002,6401,9802,640Fixed assets, net39,0004,6804,6804,6804,6804,680TotalCNY 80,000$9,600$10,830$10,170$8,370$9,030Lia

45、bilities & Owners EquityAccts. PayableCNY21,000$2,520$ 3,150$ 3,150$1,890$1,890Long-term debt27,0003,2403,2404,0503,2402,430Stockholders equity32,0003,8404,4402,9703,2404,710TotalCNY 80,000$9,600$10,830$10,170$8,370$9,030Accounting exposureCNY20,000(29,000)20,000(29,000)Translation gain (loss)US$ 60

46、0(870)(600)8708.CNY Balance SheetU.S. Dollar Before CNY Appreciation ($.12=CNY1)U.S. DollarAfter CNYAppreciation($.15 = CNY1)U.S. DollarAfter CNYDepreciation($.09 = CNY1)AssetsAmountTemporalCurrentTemporalCurrentCashCNY5,000$ 600$ 750$ 750$ 450$ 450Accts. Receivable14,0001,6802,1002,1001,2601,260Inv

47、entories(cost=24,000)22,0002,6403,3003,3001,9801,980Fixed assets, net39,0003,6003,6005,8503,6003,510TotalCNY 80,000$8,520$9,750$12,000$11,700$7,200Liabilities & Owners EquityAccts. PayableCNY21,000$2,520$3,150$3,150$1,890$1,890Long-term debt27,0003,240 4,0504,0502,4302,430Stockholders equity32,0002,

48、7602,5504,8007,3802,880TotalNT$ 80,000$8,520$9,750$12,000$11,700$7,200Accounting exposureNT$ 億 000)32,000(7,000)32,000Translation gain (loss)US$ (210)960210(960)c. Students will quickly discover that each translation method has its advantages and disadvantages. After some discussi on, the questio n

49、of tran slati on objectives will arise. Curre ncy tran slati on objectives are based on how foreig n operati ons are viewed. If foreig n operati ons are con sidered exte nsions of the pare nt, a case can be made for a historical rate method: curre nt-non curre nt, mon etary-nonmon etary, or temporal

50、. If foreig n operatio ns are viewed from a local compa ny perspective, a case can be made for the curre nt rate method. Give n the complexity of mult in atio nal bus in ess activities, one could argue that a sin gle tran slati on method will not serve all purposes for which tran slati ons are done.

51、 As long as the objectives of foreig n currency translation differ among specific reporting entities, a practical solution is to insist on full disclosure of the tran slati on procedures used so that users have a basis for rec on cili ng any differe nces that exist.Compa ny A (Cou ntry A)(Reporti ng

52、 Curre ncy = Apeso)Begi nning of YearEnd of YearAssets:Excha nge RateTran slatedExcha nge RateTran slatedApeso 100Apeso 100Apeso 100Bol 100Apeso 1 = Bol 1.25 Apeso 80Apeso 1 = Bol 2 Apeso _50Apeso 180Apeso 150Tran slation loss = A$ 30Compa ny B (Cou ntry B)(Reporti ng Currency = Bol)Begi nning of Ye

53、arEnd of YearAssets:Excha nge RateTran slatedExcha nge RateTran slatedApeso 100 Apeso 1 = Bol 1.25 Bol 125 Apeso 1 = Bol 2 Bol 200Bol 100Bol 100Bol 100Bol 225Bol 300Tran slati on gain = Bol 75b. This exercise dem on strates the effect of the report ing curre ncy on foreig n curre ncy tran slati on r

54、esults whe n the curre nt rate method is used. Both compa nies are in seem in gly ide ntical situati ons, yet one reports a translation loss while the other reports a translation gain. One company reports shrinking assets while the other reports in creas ing assets. Nothi ng has actually happe ned b

55、ut an excha nge rate cha nge. Also, despite a stro nger Apeso, Compa ny A reports a loss. Conv ersely, the Bol weake ned, yet Compa ny B reports a gain .It appears that a stre ngthe ning curre ncy is not always good n ews, nor is a weake ning curre ncy always bad n ews. If the intention is to repatr

56、iate the funds invested in the foreign country (Country B from CompaAy s perspective, Country A from Compa nB s perspective), the sce nario makes sen se. After all, Compa ny A will be repatriating fewer Apesos than originally invested and Company B will be repatriating mole than orig in ally in vested. Fluctuat ing excha nge rates have cha nged each compa ny s comma nd over a foreig n curre ncy. Assu ming the compa ny intends to repatriate the curre ncy, it makes sense toin clude the