BUS 420 Chapter Notes - Chapter 11: Cash Cash, Cash Flow, Net Income

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 420
• Professor: Arsineh Garabedian

Document Summary

Translation and consolidation of the financial statement of foreign operations. The answers depend on the type of foreign currency exposure the parent faces with the foreign subsidiary. The risk that a loss or gain could occur as a result of changes in foreign exchange rates. Accounting exposure results from the translation of foreign-currency-denominated financial statements into cad, giving rise to exchange gains and losses. Only financial statement items translated at the closing rate or forward rate create an accounting exposure, because the cad value of those items changes every time the exchange rate changes (translation adjustments) The value of items translated using the historical rate is fixed and does not fluctuate with rate changes. The resulting cash gains and losses are realized and affect the enterprise"s cash flow, working capital, and earnings. Represents a longer term risk to the parent that the overall value of its investment in a foreign subsidiary will change as a result of exchange rates fluctuations.