Explore BrainMass

Translation of Foreign Currencies

All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at approximate year-end current exchange rates and all income and expense accounts are translated at exchange rates that approximate those rates prevailing at the time of the transactions. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive income. Receivables and payables denominated in foreign currency are translated at appropriate year-end exchange rates and the resulting translation gains or losses are taken into income.

Explain the policies used in reflecting in the financial statements the impact of changes in foreign exchange rates.

Solution Preview

The above statements are GAAP compliant. This is how an international company would recognize the currency differences under GAAP. The prevailing rates at the time of the transactions are used for income and expenses, and balance sheet accounts (assets & liabilities) are are translated into yen - which is the functional currency of the country ...

Solution Summary

In this solution, I explain the impact to the financial statements when foreign exchange rates are involved. I also discuss the gains and losses that result from foreign exchange rate fluctuations and the specific impact the rates have on the financial statements for a multinational company.