Miguel Corporation, a foreign subsidiary of a U.S. parent company, has one asset (Land) and no liabilities. The functional curre
ncy for this subsidiary is the U.S. dollars. The land was acquired for 10,000,000 pesos when the exchange rate was $1=20 pesos. Consolidated statements are to be produced, and the current exchange rate is $1=25 pesos. Which of the following statements is true for the consolidated financial statements?a) A remeasurement gain must be reported.b) A positive translation adjustment must be reported.c) A negative translation adjustment must be reported.d) A remeasurement loss must be reported.
The International Accounting Standard on Currency changes says that the all the assets and liabilities of the subsidiary must be reported at market value of the asset both at the end of the year and at the time of sale of asset & payment of liability. So this means that the statement a and d are correct statements because the translation gain or loss is reported by using the spot rate which is the market value of the asset in the parent company's currency. Similarly, the statement b and c are correct because at the time of sale of subsidiary assets we are actually recognizing the remeasurement gain or loss by using the spot rate, which is the market value of the asset in the parent company's currency.
