Remeasurement and Proof of Remeasurement Gain or Loss
Refer to the information in P12−21. Assume that the dollar is the functional currency.
Required
- Prepare a schedule remeasuring Silva Company’s December 31, 20X4,
trial balance from reals to dollars. - Prepare a schedule providing a proof of the remeasurement gain or loss.
a
Introduction: Re-measurementis restatement of the foreign entity’s financial statements from the local currency that the entity used into foreign entity’s functional currency. Re-measurement is required only when the functional currency is different from the currency used to maintain foreign entity’s books and records.
Preparation of schedule re-measuring the December 31, 20X4 trial balance from reals to U.S dollars.
Answer to Problem 12.22P
Total of trial balance after re measurement to U.S dollar for December 31, 20X4 is $285,145
Explanation of Solution
Scompany
Trial balance re measurement
For the year ended December 31, 20X5
Item | reals | exchange rate | U.S. Dollars |
Cash | 57,700 | .20 | 11,540 |
Accounts receivable | 82,000 | .20 | 16,400 |
Inventory | 95,000 | .25 | 23,750 |
Prepaid insurance | 2,400 | .30 | 720 |
Plant and equipment’s | 350,000 | Schedule A | 103,000 |
Intangible assets | 30,000 | .30 | 9,000 |
Cost of goods sold | 230,000 | Schedule B | 62,250 |
Insurance expense | 3,200 | .30 | 960 |
Depreciation expense | 32,500 | Schedule C | 9,600 |
Amortization expense | 12,000 | .30 | 3,600 |
Operating expense | 152,300 | .25 | 38,075 |
Dividends paid | 25,,000 | Schedule D | 6,250 |
Total debit | 1.072,100 | 285,145 | |
Accumulated depreciation | 100,000 | Schedule E | 29,850 |
Accounts payable | 24,000 | .20 | 4,800 |
Income tax payable | 27,000 | .20 | 5,400 |
Interest payable | 1,100 | .20 | 220 |
Notes payable | 20,000 | .20 | 4,000 |
Bonds payable | 120,000 | .20 | 24,000 |
Common stock | 80,000 | .30 | 24,000 |
Additional paid-in capital | 150,000 | .30 | 45,000 |
Retained earnings | 50,000 | .30 | 15,000 |
Sales | 500,000 | .25 | 125,000 |
Total | 1,072,100 | 277,270 | |
Re-measurement gain | 7,875 | ||
285,145 |
Items | Reals | exchange rate | U.S. Dollars |
Schedule: A | |||
Plant and equipment’s January 1 20X4 | 250,000 | .30 | 75,000 |
Plant and equipment’s April 7, 20X4 | 100,000 | .28 | 28,000 |
350,000 | 103,000 | ||
Schedule: B | |||
Cost of goods sold | |||
Beginning inventory | 95,000 | .30 | 28,500 |
Purchases | 230,000 | .25 | 57,500 |
Goods available | 325,000 | 86,000 | |
Less: ending inventory | (95,000) | .25 | (23,750) |
230,000 | 62,250 | ||
Schedule : C | |||
Depreciation expenses: | |||
January 1, 20X4 | 25,000 | .30 | 7,500 |
April 7, 20X4 | 7,500 | .28 | 2,100 |
32,500 | 9,600 | ||
Schedule: D | |||
Dividends | |||
April 7 20X4 | 10,000 | .28 | 2,800 |
October 9 20X4 | 15,000 | .23 | 3,450 |
25,000 | 6,250 | ||
Schedule E | |||
Accumulated depreciation | |||
Before January 1, 20X4 | |||
January 1 20X1 | 80,000 | .30 | 24,000 |
July 10 20X2 | 12,500 | .30 | 3,750 |
July 10, 20X2 | 7,500 | .28 | 2,100 |
100,000 | 29,850 |
b
Introduction: Re-measurement is restatement of the foreign entity’s financial statements from the local currency that the entity used into foreign entity’s functional currency. Re-measurement is required only when the functional currency is different from the currency used to maintain foreign entity’s books and records.
The schedule providing proof of the re-measurement gain or loss.
Answer to Problem 12.22P
Re-measurement gain as per schedule $7,875
Explanation of Solution
Proof of re-measurement
Schedule 1 Statement of Net Monetary position
Items | End of year BRL | Beginning of year BRL |
Monetary Assets: | 57,700 | 62,000 |
Accounts receivable | 82,000 | 83,900 |
Total | 139,700 | 145,900 |
Monetary Liabilities: | ||
Accounts payable | 24,000 | 20,000 |
Income tax payable | 27,000 | 30,000 |
Interest payable | 1,100 | 1,000 |
Notes payable | 20,000 | 20,000 |
Bonds payable | 120,000 | 120,000 |
192,100 | 191,000 | |
Net monetary liabilities | (52,400) | (45,100) |
Increase in net monetary liabilities (45,100 – 52,400) | (7,300) |
Working note:
Net Monetary liabilities end of the year
Net monetary liabilities beginning of the year
Schedule 2 Analysis of change in Monetary accounts:
Item | reals | exchange rate | U.S. Dollars |
Exposed Net monetary liability | (45,100) | .30 | (13,530) |
Increases: | |||
From operations: | |||
Sales | 500,000 | .25 | 125,000 |
Decreases | |||
From operations: | |||
Purchases | (230,000) | .25 | (57,500) |
Operating expenses | (152,300) | .25 | (38,075) |
Dividends | (10,000) | .28 | (2,800) |
Dividends | (15,000) | .23 | (3,450) |
From purchase of plant and equipment’s | (100,000) | .28 | (28,000) |
Net monetary position prior to re-measurement | (18,355) | ||
Exposed net monetary liability position December 31, 20X4 | (52,400) | .20 | (10,480) |
Re-measurement gain | 7,875 |
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