Question

Ealing Company began operations as a new subsidiary of Fundamental Company, a U.S. Corporation, on January 2, 2018, by issuing common stock for 180,000 foreign currency units (FCU). Ealing immediately borrowed 35,000 FCU with a 10-year, 10% note, interest payable annually on January 1. On the same date, Ealing bought a building for 200,000 FCU. The building was to be depreciated for 20 years on a straight-line basis with a residual value of 40,000 FCU.

During the year, the building was rented for 9,000 FCU per month. At year's end, all rent had been collected. On May 1 a repair on the building of 15,000 FCU was completed and paid for. Land for a parking lot was acquired for 30,000 FCU in cash on June 1. A dividend of 20,000 FCU was declared and paid on December 1.

Exchange rates for the year were as follows: January 2, 2018 1 FCU = $.30 May 1, 2018 1 FCU = .37 June 1, 2018 1 FCU = .38 November 1, 2018 1 FCU = .41 December 1, 2018 1 FCU = .39 December 31, 2018 1 FCU = .35 average for 2018 1 FCU = .36 Fundamental company determined that the FCU was the functional currency and translation using the current rate method was appropriate for consolidation. Calculate the translation adjustment for 2018. (You might remember that the translation adjustment uses the net assets approach, not the net monetary assets approach.)

Answer 1

CALCULATION OF TRANS LATION ADJUSTMENTENT FOR 2018:

(Net Assets Approach)

Particulars    Rate Amount($)

Building 30    60,00,000

Rent collected 35    37,80,000

borrowings    30    10,50,000

common stock    30 54,00,000

   16,230,000

(-)

interest on borrowings @10% (1,05,000)

Depreciation (6000000-1200000)/20 (2,40,000)

Repair on building 37 (5,55,000)

Dividend    39 (7,80,000)

   14,550,000