Question

A foreign sub in the United States is an integrated sub and uses the temporal method to translate their foreign currency, under ASPE. They began operations January 1, year 1 and their current year end is December 31, year 2. For each item determine the date of the exchange rate that should be used for the translation of that item in the year 2 F/S: (a) Cash (b) Accounts Receivable (c) Provision for doubtful accounts (d) Depreciation on capital assets, purchased Jan. 1, year 1 and (e) monthly rent?

Answer 1

The correct exchange rate to use for the translation of a foreign subsidiary's financial statements under ASPE using the temporal method varies: cash and provisions should be translated at the year-end rate, accounts receivable at the transaction date rate, depreciation at the asset acquisition date rate, and rent at each payment date rate.

Step-by-step explanation:

A foreign subsidiary in the United States, operating under Accounting Standards for Private Enterprises (ASPE) and using the temporal method for currency translation, should use specific exchange rates for translating different items in their financial statements for Year 2. Below, I have outlined the appropriate exchange rates that should be used for each item:

• Cash: The exchange rate on the date of the balance sheet (December 31, Year 2).
• Accounts Receivable: The exchange rate at the date of the transactions (i.e., when the sales were made).
• Provision for doubtful accounts: The exchange rate at the date of the balance sheet or when the provision was established, depending on accounting policy.
• Depreciation on capital assets: The exchange rate at the date of acquisition of the assets (January 1, Year 1).
• Monthly rent: The exchange rate on the respective payment dates or accrual dates for each month.

Factors such as the foreign exchange markets play a vital role as they reflect supply and demand for currencies used in international trade and can influence the exchange rates used for translation purpose.