CCFC 513 Lecture Notes - Lecture 13: Fixed Asset, Accounts Receivable, Accounts Payable
25 Jun 2018
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CHAPTER 11: TRANSLATION AND CONSOLIDATION OF FOREIGN
OPERATIONS
What happens if there are foreign operations? (e.g. subsidiary in US)
- We need to do the consolidation
- We cannot do US financial statements with CAD financial statements
- We cannot combine US GAAP with CAD GAAP
- Subsidiary is in a different currency, so we will translate the financial statements of US
subsidiary into Canadian dollars
There are 2 methods to translate the financial statements of a foreign operation:
- Temporal method (functional currency) = integrated
- Current rate method (presentation currency) = self-sustaining
- Difference: Temporal = integrated while current rate = self-sustainning
There is balance sheet, income statement and statement of earnings and need all of them in
CAD dollars
11.1 Temporal method
- Apply this method to subsidiary that has integrated operations with parent
- This means that subsidiary would not survive with parent
- Take all assets and liabilities and split them into 2 categories: non-monetary or non-
monetary. Is this asset a monetary asset? What happens to the asset next? A/P will be
monetary (always cash)
On balance sheet,
- Categorize asset and liability into 2 categories: monetary or non-monetary
- Monetary assets and liability ď use balance sheet rate
- Non-monetary asset and liabilities (e.g. Land) ď use historical rate
- EXCEPTION: If inventory is carried at fair value, then it is monetary
On statement of earnings,
- Capital stock ď use rate in effect at date of acquisition
- Dividend ď use dividend declared rate
- The oldest rate that you can use is the rate in effect at date of acquisition
On income statement,
- Sales ď use historical average rate
- Cost of sales ď use historical average rate
- Depreciation ď use relative PPE rate (same rate as in balance sheet)
- Foreign exchange gains or loss go into income statement (will be calculated)
Document Summary
What happens if there are foreign operations? (e. g. subsidiary in us) We cannot do us financial statements with cad financial statements. We cannot combine us gaap with cad gaap. Subsidiary is in a different currency, so we will translate the financial statements of us subsidiary into canadian dollars. There are 2 methods to translate the financial statements of a foreign operation: Current rate method (presentation currency) = self-sustaining. Difference: temporal = integrated while current rate = self-sustainning. There is balance sheet, income statement and statement of earnings and need all of them in. Apply this method to subsidiary that has integrated operations with parent. This means that subsidiary would not survive with parent. Take all assets and liabilities and split them into 2 categories: non-monetary or non- monetary. Categorize asset and liability into 2 categories: monetary or non-monetary. Monetary assets and liability use balance sheet rate. Non-monetary asset and liabilities (e. g. land) use historical rate.
