Lesson details
- Estimated study time
- 110 min
Learning objectives (2)
Translation begins with statements already measured in the foreign entity's functional currency. It is not a second chance to fix that entity's accounting or a single rate applied to every balance.
Use the supplied closing rate for assets and liabilities, supported average or transaction-date rates for period revenues and expenses, historical rates for contributed equity, and appropriate rates for dividends. Carry beginning retained earnings from the prior translated statements, then add translated net income and subtract translated dividends.
The worksheet's balancing amount is the current translation adjustment. With translated assets of $1,420,000, liabilities of $610,000, common stock of $500,000, beginning retained earnings of $190,000, translated revenue of $780,000, expenses of $700,000, and dividends of $20,000, ending retained earnings is $250,000. The balancing line is visible:
Translated assets = translated liabilities + translated common stock + translated ending retained earnings + CTA.
Rearrange that balance-sheet identity to solve for the translation adjustment:
$1,420,000 - $610,000 - $500,000 - $250,000 = $60,000 CTA.
That $60,000 does not belong in operating cash flow or ordinary transaction gain. It reflects the reporting-currency articulation effect of different rate histories. Show it in the OCI/AOCI and equity controls specified by the supplied ownership facts.
The bridge stops before disposal recycling, net-investment hedges, CTA allocation to noncontrolling interests, and highly inflationary accounting. Name those intersections so learners recognize them later without pretending the simplified worksheet resolves them.