See notes below
Ssim-Tech Mexico
Ssim-Tech Mexico Temporal Method
Peso in Millions $
Consolidated Statement of Financial Position
Assets
Cash
Accounts receivable
Inventories
Fixed assets
12/31/16
$
Total Assets $
Liabilities and Stockholders Equity
Accounts payable
Long-term debt
Capital stock see note #1 below
Retained earnings
Translation adjustment- cumulative (Note #2)
Total Liabilities and Stockholders Equity $
Net Income
$
Retained earnings 1/1
Less Dividends
Retained earnings 12/31
$
300,000
1,300,000
1,200,000
9,000,000
11,800,000
2,200,000
4,400,000
2,000,000
3,200,000
11,800,000
1,130,000
2,760,000
690,000
3,200,000
Peso in Millions $
42,735
Consolidated Statement of Profit or Loss
Continuing Operations
Revenue
$
9,600,000
Cost of sales
(5,620,000)
Depreciation
(1,000,000)
Other Expenses
(1,500,000)
Aggregate exchange gain or (loss)
0
Profit Before Tax
$
1,480,000
Income Tax Expense
$
(350,000)
Profit for the Year from Continuing Operations
$
1,130,000
Notes:
#1 Capital stock was acquired at a rate of 10.8 Pesos to the US Dollar in 2005
#2 Cumulative translation is a "plug" value when the method for translation does not change
That means take"Total Assets" and subtract the "Total Liabilities and Stockholders Equity" value and add the diffe
If Total Assets do not equal Total Liabilities and Stockholders Equity you did something wrong
#3 Inventories purchased in 4th quarter 2017
$
6,250,000
#4 Retained earnings compost weighted average .07 pesos
Total Assets $
Total Liabilities and Stockholders Equity $
-
$
https://www.x-rates.com/average/?from=MXN&to=USD&amount=1.00&year=2017
-
Restated
in US $$
Exchange Rate
12/31/17
$
$
$
$
$
600,000
1,600,000
1,500,000
9,000,000
12,700,000
$
$
$
2,100,000
4,000,000
2,000,000
4,600,000
$
$
$
$
$
12,700,000
2,090,000
3,200,000
690,000
4,600,000
-
$
-
$
-
$
Restated
in US $$
$
43,100
$
11,000,000
(5,950,000)
(1,000,000)
(1,493,000)
$
2,557,000
$
(467,000)
$
2,090,000
Current Method Income >>>>>
value and add the difference into cell E17
Restated value from cell E11
does not change
olders Equity" value and add the difference into cell E17
something wrong
$
-
$
6,250,000
2017
Exchange rate
One Peso = US $$
0.046856
0.049257
0.051774
0.053379
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Average Rate = 2017
2017 4th Q avg rate
2005 Historical rate
Retained earnings composite rate
Depreciation composite rate
0.053256
0.055022
0.056067
0.056194
0.056124
0.053167
0.052773
0.052095
0.000000
0.052678
0.108000
0.07000
0.07000
https://www.x-rates.com/average/?from=MXN&to=USD&amount=1.00&year=2017
Cost of sales calculations
Beginning Inventories 1/1
Purchases
Cost of goods avilable for sale
Ending Inventories
1,200,000
6,250,000
7,450,000
1,500,000
Cost of Goods Sold
5,950,000
Aggregate exchange gain or (loss)
Cash
Accts Recv
Monetary Assets 12/31/16
Less Monetary Liabilities
$
Accts payable
Long Term Debt
Monetary Liabilities 12/31/16
Net Aggregate Exchange Gain or Loss
Times change incurrent rate
December 31, 2017
January 1, 2017
Times change incurrent rate
Aggregate exchange gain or (loss)
300,000 Prior Year Balance
1,300,000 Prior Year Balance
1,600,000
2,200,000 2016 Balance
4,400,000 2016 Balance
6,600,000
$
(5,000,000)
Exchange Rate
12/31 Current year
Avg 4Q Current year
0
-
= cell I34 * I38
Sources of monetary items
Times change incurrent rate
December 31, 2017
Average 2017
Times change incurrent rate
Net Income
$2,090,000
Depreciation
1,000,000
Total $
3,090,000
Exchange Rate
0
Total Source change $
-
= cell I45 * I49
Uses of monetary items
Change in Inventory
Dividends
Total
Times change incurrent rate
December 31, 2017
Average 2017
Times change incurrent rate
$300,000
690,000
990,000
Exchange rate
Total Use change $
Grand Total
$
-
-
= cell I56 * I60*-1
2016
Exchange rate
One Peso = US $$
0.055540
0.054165
0.056674
0.057180
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Average Rate = 2016
2016 4th Q avg rate
2005 Historical rate
Retained earnings composite rate
Depreciation composite rate
Current year
0.055217
0.053552
0.053856
0.054095
0.052110
0.052766
0.049818
0.048726
0.048877
0.050437
0.108000
0.07000
0.07000
$
-
Avg 4Q 2016
Average 2017
Avg 4Q 2017
CURRENT–NONCURRENT METHOD Under the current–noncurrent method, a foreign subsidiary’s
current assets (assets that are usually converted to cash within a year) and current
liabilities (obligations that mature within a year) are translated into their parent company’s
reporting currency at the current rate. Noncurrent assets and liabilities are translated at historical
rates. Income statement items (except for depreciation and amortization charges) are
translated at average rates applicable to each month of operation or on the basis of weighted
averages covering the whole period being reported. Depreciation and amortization charges
are translated at the historical rates in effect when the related assets were acquired.
Unfortunately, this method does not often square with reality. Using the year-end
rate to translate current assets implies that all foreign currency cash, receivables, and
inventories are equally exposed to exchange risk; that is, will be worth more or less in
parent currency if the exchange rate changes during the year. This is simply not true.
For example, if the local price of inventory can be increased after a devaluation, its
value is protected from currency exchange risk. On the other hand, translation of longterm
debt at the historical rate shifts the impact of fluctuating currencies to the year of
settlement. Many consider this to be at odds with reality as analysts are always assessing
the current realizable values of a firm’s long-run obligations. Moreover, current and
noncurrent definitions are merely a classification scheme, not a conceptual justification,
of which rates to use in translation.
TEMPORAL METHOD With the temporal method, currency translation does not change
the attribute of an item being measured; it only changes the unit of measure. In other
words, translation of foreign balances restates the currency denomination of these
items, but not their actual valuation. Under U.S. GAAP, cash is measured in terms of the
amount owned at the balance sheet date. Receivables and payables are stated at
amounts expected to be received or paid when due. Other assets and liabilities are
measured at money prices that prevailed when the items were acquired or incurred
(historical prices). Some, however, are measured at prices prevailing as of the financial
statement date (current prices), such as inventories under the lower of cost or market
rule. In short, a time dimension is associated with these money values.
In the temporal method, monetary items such as cash, receivables, and payables
are translated at the current rate. Nonmonetary items are translated at rates that
preserve their original measurement bases. Specifically, assets carried on the foreign
currency statements at historical cost are translated at the historical rate. Why?
Because historical cost in foreign currency translated by a historical exchange rate
yields historical cost in domestic currency. Similarly, nonmonetary items carried
abroad at current values are translated at the current rate because current value in
foreign currency translated by a current exchange rate produces current value in
domestic currency. Revenue and expense items are translated at rates that prevailed
when the underlying transactions took place, although average rates are suggested
when revenue or expense transactions are voluminous.
When nonmonetary items abroad are valued at historical cost, the translation
procedures resulting from the temporal method are virtually identical to those
produced by the monetary–nonmonetary method. The two translation methods differ
only if other asset valuation bases are employed, such as replacement cost, market
values, or discounted cash flows.
Because it is similar to the monetary–nonmonetary method, the temporal method
shares most of its advantages and disadvantages. In deliberately ignoring local inflation,
this method shares a limitation with the other translation methods discussed. (Of
course, historical cost accounting ignores inflation as well!).
All four methods just described have been used in the United States at one time or
another and can be found today in various countries. In general, they produce noticeably
different foreign currency translation results. The first three methods (i.e., the current rate,
current–noncurrent, and monetary–nonmonetary) are predicated on identifying which
assets and liabilities are exposed to, or sheltered from, currency exchange risk. The translation
methodology is then applied consistent with this distinction. The current rate method
presumes that the entire foreign operation is exposed to exchange rate risk since all assets
and liabilities are translated at the year-end exchange rate. The current–noncurrent
rate method presumes that only the current assets and liabilities are so exposed, while the
monetary–nonmonetary method presumes that monetary assets and liabilities are
exposed. In contrast, the temporal method is designed to preserve the underlying theoretical
basis of accounting measurement used in preparing the financial statements being
translated.
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