To get the translation gain or loss under temporal method, as I understand it, you start with BS and find the Retained earnings after translation (RE=A-L-Capital Stock). Then you plug the whole RE figure into the IS and work backwards to get the translantion G&L. (ie. NI=RE +Dividends, then translation G&L= NI- income before translation G&L)
However, for Schewser mock exam2 morning session Q 16, NI was claculated as Ending RE after translation -Begining RE+Dividends=NI, and then NI calculated this way was pluged into the IS to find translation loss. I know this intunitively works, but I cant get the same answer using the original method. Am I missing something here? Would appreciate any clarification. Thanks guys.
You cant plug the whole RE into income statment. because:
a) you are forgetting whats important is the change in RE, which is dependent on NI and Dividents. You are looking for NI to plug into I/S. and that means Ending RE - PreviousRE + dividends = NI
and more importantly
b) there may be a difference in historical exchange rates of last years RE, this years RE and dividends paid out. this will be specified if there is.
For what it’s worth, it’s dividend’s _ declared _, not dividends paid.
When dividends are declared, they’re removed from retained earnings and moved to dividends payable (a liability account); when they’re paid they’re removed from dividends payable.
At this point, I feel like passing is really just a matter of being lucky enough to get asked details you know on exam day… there’s just soo damn much!
my company based in US and has operation in Australia. My company exports goods to Aus. If AUD appreciate, my company will gain because we got paid in AUD and when we convert to USD, we can get more in USD. If our company import materials from Aus, the effect is reversed and we loss. In short, if we hold net asset and the FC appreciate, we will have a gain , when we hold net liabilities and the FC appreciate, we will have a loss.