ACT506 Discussion 6.docx - In this scenario the Australian...

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In this scenario, the Australian subsidiary would use the remeasurement method, while the French subsidiary would use the current or translation method. The French subsidiary operates as a separate company using their functional currency for its accounting records. What are the objectives of translating a foreign subsidiary’s currency and why? The objective of translating the French subsidiary is to convert the Euro’s to USD for the financial reporting and to reflect the parent’s investment and their exposure to exchange risk (O’Connor, N, 2015). How do gains and losses arise from the translation or measurement of each subsidiary’s financial statements? In regards to the French subsidiary, total assets less common stock and ending retained earnings are used to calculate the translation adjustment resulting in a gain or loss that is shown on the balance sheet in equity as OCI. The Australian subsidiary using remeasurement, gains and losses are the difference between total assets and liabilities on the balance sheet (O’Connor, N, 2015).
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