FIN 321 Weekly Assignment # 6a

FIN 321 Weekly Assignment # 6a - Chapter 11 Question: 3....

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Chapter 11 Question: 3. The Central Problem. What is the central problem in consolidating the financial statement of a foreign subsidiary? The central problem arises from the fact that exchange rates change from one time period to another, combined with the accounting tradition that accounts are supposed to be kept on a historic cost basis. The value in the parent’s home currency of assets and liabilities measured on a historic cost basis in a foreign currency is not clear if the exchange rate has changed. Different countries have different rules on how to treat the discrepancy that arises when exchange rates change. 6. Translating assets. What are the major differences in translating assets between the current rate method and the temporal method? Under the current rate method, all assets are translated at the exchange rate in effect on the date that the accounts are translated. Under the temporal method, monetary assets (cash, marketable securities, and accounts receivable) are translated (accountants prefer the technical term remeasured) at the current exchange rate, but inventory and fixed assets are translated at the exchange rate that was in effect at the time that the asset was acquired. (Exceptions exist where the local inflation rate exceeds 100% over a three-year period.)
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This note was uploaded on 01/25/2011 for the course FIN 320 taught by Professor Mercury during the Fall '10 term at Central Connecticut State University.

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FIN 321 Weekly Assignment # 6a - Chapter 11 Question: 3....

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