What is the difference between a direct intercompany transactrion and an indirect intercompany transaction? How does the difference effect reporting them on a consolidasted statement?© BrainMass Inc. brainmass.com October 17, 2018, 3:35 am ad1c9bdddf
These are internal transactions between two correlated companies which file consolidated tax returns or financial statements. These transactions take place between two companies aiming to achieve specific goals that are dependent on the operations of each of the companies. As an example, when a supplier sells products to a retailer, this is an intercompany transaction.
This transaction takes place between two units of the same entity and is aimed at promoting great business relations. It is a fact that major economic transactions involve the relation of the two unrelated entities in the market, but the relations of companies of the same entities is rampant in the present business world. The intercompany transactions undertaken between the companies involve items such as; the declaration and payments of dividends, the purchase and sales of assets as well as lending and borrowing (Intercompany Transactions, n.d).
Direct intercompany transaction:
This kind of business transaction occurs when the subsidiaries in the combined business operation have open transactions with the organization that has power to control the combined business operations. A subsidiary is an entity in the transaction that is controlled by the parent organization. In this business interaction, direct investments links are established between the subsidiaries and the main ...
The differences in direct and indirect transactions are examined.
International Finance Questions- direct and indirect exchange rates, foreign transaction, foreign currency transaction, factors affecting currency exchange rates, measurement of assets and liabilities denominated in a foreign currency, recognition of foreign currency transaction gains or losses, management of the risk of changes in the exchange rates for foreign currencies, difference between an exposed net asset position and an exposed net liability position.
Q11-1 Explain the difference between indirect and direct exchange rates.
Q11-2 What is the direct exchange rate if a U.S. company receives $1.3623 in Canadian currency in exchange for $1.00 in U.S. currency?
Q11-3 The U.S. dollar strengthened against the European euro. Will imports from Europe into the United States be more expensive or less expensive in U.S. dollars? Explain.
Q11-4 Differentiate between a foreign transaction and a foreign currency transaction. Give an example of each.
Q11-5 What types of economic factors affect currency exchange rates? Give an example of a change in an economic factor that results in a weakening of the local currency unit versus a foreign currency unit.
Q11-6 How are assets and liabilities denominated in a foreign currency measured on the transaction date? On the balance sheet date?
Q11-7 When are foreign currency transaction gains or losses recognized in the financial statements? Where are these gains or losses reported in the financial statements?
Q11-8 Sun Company, a U.S. corporation, has an account payable of $200,000 denominated in Canadian dollars. If the direct exchange rate increases, will Sun experience a foreign currency transaction gain or
loss on this payable?
Q11-9 What are some ways a U.S. company can manage the risk of changes in the exchange rates for foreign currencies?
Q11-10 Distinguish between an exposed net asset position and an exposed net liability position.View Full Posting Details