The Translation Of Foreign Currency

Exchange rate gains or losses are brought to account in determining the net profit or loss in the period in which they arise, as are exchange gains or losses relating to cross currency swap transactions on monetary items. Exchange differences relating to hedges of specific transactions in respect of the cost of inventories or other assets, to the extent that they occur before the date of receipt, are deferred and included in the measurement of the transaction. Exchange differences relating to other hedge transactions are brought to account in determining the net profit or loss in the period in which they arise. Foreign controlled entities are considered self-sustaining. Assets and liabilities are translated by applying the rate ruling at balance date and revenue and expense items are translated at the average rate calculated for the period. Exchange rate differences are taken to the foreign currency translation reserve.

The Standard Codification ASC 830-230-55-1 is described as follows: ASC is the area of theaccounting standard codification, 830 is the topic “Foreign Currency Matter”, 230 is the subtopic“Statement of Cash Flow”, the number 55 is the section “Implementation Guidance and Illustrations”, and finally the number 1 is the paragraph with an “example of a Statement of Cash Flows for Manufacturing Entity With Foreign Operations”. This organization uses the direct method in their Statement of Cash Flow and it is a U.S. manufacturing organization with international operations. This codification illustrates how companies with foreign operation can operate with different currencies at the same time. The disclosure of the fluctuation of the exchange rate is also included the

In the dynamic global market, companies of all sizes, whether small, medium or transnationals interact with foreign companies and in most cases operate with currencies that are different from those that they commonly use. Foreign companies use foreign currencies for their expenditures, hedging strategies, and investing and financing activities. As a result these business activities must be reflected on the financial statements in the corporation’s reporting currency. FASB 52 and IAS 21 provide the appropriate guidance on the consideration of which functional currency should be implemented by the foreign subsidiaries. This case focuses in Sparkle a Nigerian subsidiary of a

During the second half of 1997, currencies and stock market prices plunged in value across Southeast Asia, beginning in

U.S. Corporations do an ever increasing amount of business overseas. This business, however, is usually done in local currency. When this money is to be reported to the IRS it must be converted into US Dollars which can come with a gain or loss on the conversion.

Given the nature of its business, Jaguar is faced with three types of exchange rate exposure (1) Transaction, (2) Translation and (3) Economic . Transaction exposures arise whenever the firm commits (or is contractually obligated) to make or receive a payment at a future date denominated in a foreign currency. Translation exposures arise from accounting based changes in consolidated financial statements caused by a change in exchange rates. In this case we primarily focus on the Economic exposure -also known as Operating exposure or Competitive exposure- of Jaguar.

As mentioned in the case, the two essential standard approaches are widely used when evaluate the international cash flows. Follow the two approaches we can then get the below result:

In 2002, Candela Corporation statement of cash flows shows a net loss of income at $2,154,000. The reason for the loss is from accrual methods as non-cash expenses are added back. This method shows the company the true cash flows of the business. Some of the items that were added back in that had a significant affect is from loss of the discontinued operations and the interest firm the stock warrants. The categories that had significant subtractions were the foreign currency exchange rate difference and the respect of the deferred taxes. The results are the working capital that had resulted in a gross outflow of cash flow, which caused the cash outflow to show from the operating activities. There is a

Answer: To characterize the risk of a currency position, you must try to characterize the conditional distribution of the future exchange rate changes. With floating exchange rates, historical information provides useful information about this distribution. For example, you can use data to measure the average historical dispersion (standard deviation or volatility) of the distribution. The higher this volatility, the riskier are positions in this currency. It is also possible to rely on more forward-looking information using the options markets (see Chapter 20). Finally, we should point out that volatility

Changes in foreign exchange rates caused the ex-post cost of borrowing to increase or decrease from what was originally expected. Management can only guess at future foreign exchange risk. Therefore, they could either borrow only in their functional currency or diversify by currency their sources of borrowing.

However, speculation can only be expected to smooth exchange rate movements if underlying economic processes are relatively stable. If there is a great deal of uncertainty over future government actions and their economic impact, expectations will not be strongly held. Thus expectations can change dramatically from day- to-day, leading to rapidly fluctuating exchange rates.

Next, we are concerned about accounting risk. At each reporting period end we must translate all of our balance sheet items to our reporting currency (USD). This means that if we hold assets in a foreign denominated currency and it depreciates relative to the USD, it will result in a write down of our balance sheet assets. This can be particularly harmful in the face of loan covenants, and potentially drive up our borrowing costs. This can also result in a decrease of our net income and drive down our share price.

Items presented in the financial statements of each of the Group`s entities are measured using the functional currency. IPL’s presentation currency is the Australian dollar, the currency used to present its consolidated financial statements. Foreign currency transactions are translated into the functional currency at the exchange rate on the day the transaction occurs. Foreign exchange gains and losses are recognised in the statement of comprehensive income, except when they are `deferred in equity as qualifying cash flow hedges`. These have been calculated following the AASB 121 `The effects of changes in Foreign exchange rates` and AASB 139 `Financial instruments – recognition and measurement`.

After calculating Net Income, I was able to calculate the proper Retained Earnings value for year-3, and then confirm that the value put the balance sheet in equilibrium. The Temporal translation method requires certain assets and liabilities to be translated at the current exchange rate, and others at the historical exchange rate. Those that are translated at the current exchange rate will have values that change as a function of the current exchange rate. These items are exposed to translation adjustments, and alter UDC’s balance sheet exposure every reporting period. UDC had a total monetary asset value of $6,611,688; and a total monetary liability value of $3,894,188; thus, resulting in a net monetary asset position of $3,894,188, meaning UDC was net asset exposed at EOY 3. When net asset exposure is coupled with foreign currency appreciation, the result is a remeasurement gain. UDC experienced a remeasurement gain of $918,839, which constitutes 23.85% of net income for the year. As observed, net income can be largely affected by remeasurement gains and losses. Translation adjustments aren’t realized through inflows or outflows of cash; however, they can be particularly alarming to investors who focus on earnings-per-share, price-earnings, or other accounting ratios.

Currency translation adjustment and contributions to an employee benefit trust have been deducted from retained earnings.