course hero what is the rationale for the remeasurement of foreign currency transactions?

What is Remeasurement and translation?

Remeasurement is also known as the temporal method. Translation is conducted when the functional currency is different from the reporting currency. Remeasurement is used to convert either local currency or foreign currency (or both) into functional currency.

How are Remeasurement and translation reported on the income statement?

Any gains or losses from remeasurement are reported directly on the income statement in the period. Remeasurement focuses on converting foreign currencies into the subsidiary’s functional currency. Translation focuses on converting the functional currency for a subsidiary into the reporting currency for the parent company.

Why are foreign currency balances common in financial statements?

Foreign currency balances are common because many companies buy and sell products and services internationally. Although many of these transactions are denominated in foreign currencies, they are reported in U.S. dollars when financial statements are produced for distribution in this country.

Are assets denominated in foreign currency reported at current exchange rate?

For over twenty-five years, U.S. GAAP has required that monetary assets and liabilities denominated in a foreign currency be reported at the current exchange rate as of the balance sheet date. All other balances continue to be shown at the exchange rate in effect on the date of the original transaction.

Why are foreign currency balances common?

Why is reporting foreign currency difficult?

What is the value of 100,000 peso receivable?

Why is it important to have a standard for financial accounting?

When are gains and losses reported on a company's income statement?

What is monetary asset?

Does GAAP require foreign currency?

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What is the rationale for the remeasurement of foreign currency transactions?

Companies use remeasurement when translating the value of revenues and assets from a foreign subsidiary that is denominated in another currency. Remeasurement is also important because it can help companies revalue fixed assets (physical, long-term assets) as well as intangible assets, such as goodwill.

Which of the following most accurately describe how foreign currency transactions should be translated under IAS 21 The Effects of Changes in Foreign Exchange Rates?

Which of the following statements accurately describes the manner in which transactions must be translated under IAS 21 The Effects of Changes in Foreign Exchange Rates? All individual transactions must be translated into the functional currency of the reporting entity.

What are the two major issues related to the translation of foreign currency financial statements?

The two major issues related to the translation of foreign currency financial statements are: (1) which method should be used, and (2) where should the resulting translation adjustment be reported in the consolidated financial statements.

Which of the following methods for translating foreign currency financial statements is required to be used under IAS 21?

A) IAS 21 requires that the subsidiary's financial statements be restated to account for the inflation before using the current exchange rate for all balance sheet accounts. B) IAS 21 requires that the temporal method be used for translating the foreign currency financial statement.

Which of the following is one of the most important trading centers in the foreign exchange market?

Where is the foreign exchange market located? The foreign exchange market is not located in any one place. Rather, it is a global network of banks, brokers, and foreign exchange dealers connected by electronic communications systems. The most important trading centers are London, New York, Zurich, Tokyo, and Singapore.

Is the impact of currency exchange rates changed on the reported financial statements of a company?

Translation exposure is the impact of short-run currency exchange rates changes on the reported financial statements of a company.

Which translation method do we use when the subsidiary is in a country with highly inflationary economy?

US GAAP requires the financial statements of foreign operations in a highly inflationary economy to be translated using the temporal method, as if the parent currency is the functional currency.

Which of the following observations is true of technical analysis an approach to exchange rate forecasting?

Which of the following observations is true of technical analysis, an approach to exchange rate forecasting? It does not rely on a consideration of economic fundamentals.

Financial Statements: How Does Currency Translation Work

If your business entity operates in several countries, chances are you also use different currencies as part of your business operations. But when it comes to reporting your company’s finances through financial statement, you aren’t allowed to use more than one currency. In order to have your financial statements recorded in a single currency, you’ll need to perform currency translation.

GAAP: Foreign currency translation | ACCA Global

Current accounting treatment . SSAP 20 (applicable to entities not required or opting to apply FRS 23) requires foreign currency transactions to be translated in the entity’s local currency using the spot exchange rate, or an average rate for a period that is a close approximation.

IFRS - IAS 21 The Effects of Changes in Foreign Exchange Rates

In April 2001 the International Accounting Standards Board (Board) adopted IAS 21 The Effects of Changes in Foreign Exchange Rates, which had originally been issued by the International Accounting Standards Committee in December 1983.IAS 21 The Effects of Changes in Foreign Exchange Rates replaced IAS 21 Accounting for the Effects of Changes in Foreign Exchange Rates (issued in July 1983).

Why are foreign currency balances common?

Foreign currency balances are common because many companies buy and sell products and services internationally. Although many of these transactions are denominated in foreign currencies, they are reported in U.S. dollars when financial statements are produced for distribution in this country.

Why is reporting foreign currency difficult?

The basic problem with reporting foreign currency balances is that exchange rates are constantly in flux. The price of one euro in terms of U.S. dollars changes many times each day. If these rates remained constant, a single conversion value could be determined at the time of the initial transaction and then used consistently for reporting purposes. However, exchange rates are rarely fixed; they often change moment by moment. For example, if a sale is made on account with the money to be received in a foreign currency in sixty days, the relative worth of that balance will probably move up and down many times before collection. When such values float, the reporting of foreign currency amounts poses a challenge for financial accounting with no easy resolution.

What is the value of 100,000 peso receivable?

Answer: In this example, the value of the 100,000-peso receivable is raised from $8,000 to $9,000. When the amount reported for monetary assets and liabilities increases or decreases because of changes in currency exchange rates, a gain or loss is recognized on the income statement. Here, the receivable is now reported $1,000 higher. The company’s financial condition has improved and a gain is recognized. If the opposite occurs and the reported value of monetary assets declines (or the value of monetary liabilities increases), a loss is recognized. The following adjusting entry is appropriate.

Why is it important to have a standard for financial accounting?

Answer: This situation is a perfect example of why having an authoritative standard for financial accounting, such as U.S. GAAP, is so important for communication purposes. Foreign currency balances are extremely common in today’s world. For many companies, sales, purchases, expenses and the like can be denominated in dozens of different currencies. Mechanically, many methods of reporting such figures are available. Without standardization, decision makers would likely be faced with analyzing similar companies possibly reporting foreign balances in a variety of ways. Assessing the comparative financial health and future prospects of organizations using different types of accounting will always pose an extremely difficult challenge.

When are gains and losses reported on a company's income statement?

Understand that gains and losses are reported on a company’s income statement when certain foreign currency balances are remeasured using new currency exchange rates.

What is monetary asset?

Monetary assets and liabilities are amounts currently held as cash or that will require a future transfer of a specified amount of cash. In the coverage here, for convenience, such monetary accounts will be limited to cash, receivables, and payables.

Does GAAP require foreign currency?

For over twenty-five years, U.S. GAAP has required that monetary assets and liabilities denominated in a foreign currency be reported at the current exchange rate as of the balance sheet date. All other balances continue to be shown at the exchange rate in effect on the date of the original transaction.

When functional currency is converted into reporting currency, it is named as a translation?

When the functional currency is converted into reporting currency, it is named as a translation. At times where certain transactions are reported in either local currency or a foreign currency, they should be converted into functional currency prior to converting into reporting currency.

What happens if a company maintains accounting records in the local currency but its functional currency is another?

If a company maintains accounting records in the local currency, but its functional currency is another, then the results should be converted into the functional currency.

What is the difference between Translation and Remeasurement?

Remeasurement is a process to measure financial results that are denominated or stated in another currency into the functional currency of the organization.

What is Remesurement?

Remeasurement is a process to measure financial results that are denominated or stated in another currency into the functional currency of the organization. This method is also referred to as ‘ temporal method .’ Remeasurement has to be conducted in the following circumstances.

What is remeasurement in finance?

Remeasurement is a process to measure financial results that are denominated or stated in another currency into the functional currency of the organization. Synonyms. Translation is also known as the current rate method. Remeasurement is also known as the temporal method. Types.

What is translation and remesurement?

However, here is a subtle difference between the two conversion methods. The key difference between translation and remeasurement is that translation is used to express financial results of a business unit in the parent company’s functional currency whereas remeasurement is a process to measure financial results that are denominated or stated in another currency into the functional currency of the organization.

What currency does H use?

E.g. Company H operates with the functional currency of US Dollar (USD). Recently the company obtained a foreign loan denominated in Great Britain Pound (GBP). The loan payments should be converted into USD for reporting purpose

Why are foreign currency balances common?

Foreign currency balances are common because many companies buy and sell products and services internationally. Although many of these transactions are denominated in foreign currencies, they are reported in U.S. dollars when financial statements are produced for distribution in this country.

Why is reporting foreign currency difficult?

The basic problem with reporting foreign currency balances is that exchange rates are constantly in flux. The price of one euro in terms of U.S. dollars changes many times each day. If these rates remained constant, a single conversion value could be determined at the time of the initial transaction and then used consistently for reporting purposes. However, exchange rates are rarely fixed; they often change moment by moment. For example, if a sale is made on account with the money to be received in a foreign currency in sixty days, the relative worth of that balance will probably move up and down many times before collection. When such values float, the reporting of foreign currency amounts poses a challenge for financial accounting with no easy resolution.

What is the value of 100,000 peso receivable?

Answer: In this example, the value of the 100,000-peso receivable is raised from $8,000 to $9,000. When the amount reported for monetary assets and liabilities increases or decreases because of changes in currency exchange rates, a gain or loss is recognized on the income statement. Here, the receivable is now reported $1,000 higher. The company’s financial condition has improved and a gain is recognized. If the opposite occurs and the reported value of monetary assets declines (or the value of monetary liabilities increases), a loss is recognized. The following adjusting entry is appropriate.

Why is it important to have a standard for financial accounting?

Answer: This situation is a perfect example of why having an authoritative standard for financial accounting, such as U.S. GAAP, is so important for communication purposes. Foreign currency balances are extremely common in today’s world. For many companies, sales, purchases, expenses and the like can be denominated in dozens of different currencies. Mechanically, many methods of reporting such figures are available. Without standardization, decision makers would likely be faced with analyzing similar companies possibly reporting foreign balances in a variety of ways. Assessing the comparative financial health and future prospects of organizations using different types of accounting will always pose an extremely difficult challenge.

When are gains and losses reported on a company's income statement?

Understand that gains and losses are reported on a company’s income statement when certain foreign currency balances are remeasured using new currency exchange rates.

What is monetary asset?

Monetary assets and liabilities are amounts currently held as cash or that will require a future transfer of a specified amount of cash. In the coverage here, for convenience, such monetary accounts will be limited to cash, receivables, and payables.

Does GAAP require foreign currency?

For over twenty-five years, U.S. GAAP has required that monetary assets and liabilities denominated in a foreign currency be reported at the current exchange rate as of the balance sheet date. All other balances continue to be shown at the exchange rate in effect on the date of the original transaction.