Question

Suppose an American subsidiary of UK company showed: Current assets of dollar 5 million; Current liabilities of dollar 4.1 million; Total assets = dollar 7.2 million; Total liabilities = dollar 8.2 million If the dollar deprecated during that year from £0.7538 to £0.7500. Under FASB-52, what is the translation gain (loss) in pound if dollar is the functional currency?

Answer 1

Answer:

0.004 million Euro is the  translation gain

Explanation:

The total cost of asset before depreciation of dollar =  dollar 7.2 million * 0.7538 = 5.427 million Euro

1 dollar = 0.7538 Euros

Cost of asset in Euros after after depreciation of dollar = 7.2 * 10^6 * 0.7500 = 5.4 million  Euro

Total liabilities before depreciation of dollar =  dollar 8.2 million * 0.7538 = 6.181 million Euro

Total liabilities after depreciation of dollar =  dollar 8.2 million * 0.7500 = 6.15 million Euro

The total loss in asset value = 5.427 million -5.40 million = 0.027 million  Euro

The total profit in liabilities = 6.181 million -6.15 million = 0.031 million Euro

Net profit  = 0.031 million -0.027 million = 0.004 million Euro