Alliance Corporation (an Australian company) invests 1,000,000 marks in a foreign subsidiary on January 1, Year 1. The subsidiary commences operations on that date, and generates net income of 200,000 marks during its first year of operations. No dividends are sent to the parent this year. A relevant exchange rate between Alliance’s reporting currency (A$) and the mark is as follows:
January 1, Year 1………….. A$0.15
Average, Year 1………………….0.17
December 31, 1997……………0.21
Required:
Determine the amount of translation adjustment that Alliance will report on its December 31, Year 1, balance sheet.
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Exchange |
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Marks |
Rate |
A$ |
| Net Assets, 1/1/Y1 |
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1,000,000 |
0.15 |
150,000 |
| Increase in Net assets: |
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| Net Income, Year 1 |
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200,000 |
0.17 |
34,000 |
| Net Assets, 31/12/Y1 |
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1,200,000 |
|
184,000 |
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| Net Assets, 31/12/Y1 at |
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| the current exchange rate |
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1,200,000 |
0.21 |
252,000 |
| Translation adjustment |
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-68,000 |
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