Textbook Notes (270,000)
CA (160,000)
UTSG (10,000)
Chapter 11

RSM321H1 Chapter Notes - Chapter 11: Retained Earnings, Share Capital


Department
Rotman Commerce
Course Code
RSM321H1
Professor
Julie Mc Donald
Chapter
11

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The Functional Currency Translation Method - Integrated Foreign Operation
Temporal method
Functional currency is always CAD
Exchange gain/loss into NI
Monetary items are translated at the closing rate
Non-monetary items are translated at appropriate historical rates, unless the non-monetary
item is to be reported at fair value, which will be translated at the closing rate
Common shares and beginning-of-year retained earnings are translated at the historical rate on
the date of acquisition. In future years, the translated amount for retained earnings will have to
be calculated
o Shareholders' equity accounts are translated at historical rates
Revenue and expenses, with the exception of depreciation and COGS, are translated at the
average rate for the year
o The three components of COGS are translated at the historical rates when these goods
were purchased
Beginning inventory: translated at historical rates
Ending inventory: translated at historical rates
Purchases: translated at the average rate for the year
Depreciation is translated at the historical rates used to translate the related assets
The Presentation Currency Translation Method Self-sustaining Foreign Operation
Current rate method
Functional currency is other than CAD
Exchange gain/loss into OCI
All assets and liabilities should be translated at the closing rate
All items within SHE is translated using the historical rate applicable for each item
o Share capital is translated at historical rates
o C/S and beginning R/E are translated at the acquisition date historical rate
Dividends are translated at the historical rate on the date of declaration
o If dividends were not paid by year-end, the dividends payable will be translated at the
closing rate, and an exchange gain or loss will result from the translation of these items
All revenues and expenses are translated using the exchange rate in effect on the dates on
which such items are recognized in income during the period
o If the revenues or expenses were recognized in income evenly throughout the period,
the average rate for the period is used to translate these items
Only the N/I from the I/S is carried forward to the statement of R/E
OCI is carried forward to AOCI, which would be accumulated translation adjustments
Differentiate between OCI for the year that is reported in comprehensive income and AOCI that
is reported in SHE
Exchange gains and losses occur only on those items translated at the closing rate and only if the
rates change during the period
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