TRANSLATION OF FOREIGN FINANCIAL STATEMENTS
Functional currency – the currency of the primary economic environment in which the entity operates.
Exchange difference- the difference resulting from translating a given number of units of one currency into another
currency at different exchange rates.
Foreign operation – a subsidiary, associate, joint venture, or branch whose activities are based or conducted in a country
or currency other than of the reporting entity.
Closing rate – the exchange rate at the balance sheet date.
Spot rate – the exchange rate for immediate delivery.
Presentation currency – the currency that is used to present the financial statements.
Illustration – first year 2020
Assume that a Philippine company has 100% owned subsidiary in Taiwan that began operation in 2020. The subsidiary
conducts operation in the company-owned building. This building, which cost 50 million NT Dollar (NT$) was financed
primarily by Taiwan banks, although the parent did invest 20 million NT dollar in Taiwan operation. All revenues and
cash expenses are received and paid in NT dollar. The subsidiary also maintains its books and records in NT Dollar.
The subsidiary’s statement of financial position at December 31, 2020 and its combined statement of income and
retained earnings for the year ended December 31, 2020 are as follows:
Taiwan Company
Statement of Financial Position
December 31, 2020 ( in thousand of NT$)
Assets
Cash
Accounts Receivable
Land
Building
Accumulated depreciation
Total Assets
Liabilities and Stockholders” Equity
Accounts Payable
Unearned Rent
Mortgage Payable
Common Stock
Retaine d Earnings
Total Liabilities & Stockholders’ equity
Combined Statement of Income and Retained Earnings
For the year ended December 31, 2020
(In thousand of NT$)
Revenues
Operating expenses
Net Income
Retained Earnings – January 17, 2021
Dividend Paid
Retained Earnings, December 31
NT$ 5,000
2,000
10,000
50,000
(
1,000)
NT$ 60,000
==========
NT$ 3,000
1,000
40,000
16,000
2,000
NTS 60,000
==========
NT$ 20,000
17,000
NT$ 3,000
1,000
NT$
2,000
============
Various assumed exchange rates for 2020 are as follows:
NT$ 1 = P0.90 at the beginning of 2020 (when the common stock was issued and the land and building were financed
through the mortgage).
NT$ 1 = P1.05 weighted average for 2020.
NT$ 1 = P1.10 at the date the dividends were declared and the unearned rent was received.
NT$ 1 = P1.20 closing ( December 31, 2020)
The Taiwan Company’s financial statements must be translated into Philippine pesos in terms of the provision of PAS 21.
Taiwan Company
Translation of Financial statement to Philippine Pesos
For the year ended December 31, 2020 (In thousand of NT$)
NT$
Revenues
Operating Expenses
Net Income
Retained earnings, January 17, 2021
Dividends
Retained Earnings December 31, 2020
Exchange rates Philippine Pesos
20,000
17,000
3,000
1.05
1.05
P 21,000
17,850
P 3,150
( 1,000)
2,000
=======
1.10
(1,100)
P 2,050
========
Statement of Financial Position
Cash
Accounts Receivable
Land
Building (net)
Total Assets
5,000
1.20 P 6,000
2,000
1.20
2,400
10,000
1.20
12,000
49,000
1.20
58,800
NT$ 66,000
P 79,200
==========
========
Accounts Payable
NT$ 3,000
1.20 P 3,600
Unearned Rent
1,000
1.20
1,200
Mortgage Payable
40,000
1.20
48,000
Common Stock
4,000
.90
3,600
Additional Paid In Capital
16,000
.90
14,400
Assume the following financial statements were reported by Taiwan Company on December 202
Translation Adjustments-OCI
6,350
Total Liabilities and Stockholders’ equity
NTS 66,000
P 79,200
============
=========
NT$
Net Assets at the beginning of the year
Changes in Net Assets:
Net Income
Dividends
Exchange Rate Phil. Pesos
NT$P20,000 .90
3,000 1.05
(
1,000) 1.10
P18,000
3,150
( 1,100)
Net Assets translated at Rates
During the Year
At the end of the Year
20,050
22,000 1.20
26,400
==========
Translation adjustments OCI
(P6,350 )
=======
Assume the following financial statements were reported by Taiwan Company December 31, 2021:
TAIWAN COMPANY
Comparative statement of Financial Position
December 31, 2021 & 2020
(In thousand of NTS)
2021
2020
Increase
(Decrease)
Assets:
Cash
10,000
5,000
5,000
Accounts receivable
2,000
(2,000)
Land
15,000
10,000
5,000
Building (net)
48,000
49,000
(1,000)
Total Assets
73,000
66,000
7,000
======
======
=====
Liabilities & Stockholders’ equity
Accounts Payable
5,000
3,000
2,000
Unearned Rent
1,000
(1,000)
Mortgage Payable
45,000
40,000
5,000
Common Stock
4,000
4,000
Additional Paid In capital
16 ,000
16,000
Retained Earnings
3,000
2,000
1,000
Total Liabilities & Stockholders’ Equity
73,000
66,000
7,000
======
======
======
TAIWAN COMPANY
Combined statement of Income and Retained Earnings
For the year Ended December 31,2021
(In Thousand of NT$)
Revenues
Operating Expenses (including depreciation of NT$ 1,000)
Net Income
Retained Earnings January 1,
Dividends
Retained Earnings, December 31
NT$ 22,000
17,000
NT$ 5,000
2,000
( 4,000)
NT$ 3,000
=========
Exchange rates were:
NT$ 1 = P1.20 at the beginning of 2021
NT$ 1 = 1.16 weighted average for 2021
NT$ 1 = 1.08 closing (December 31, 2021
NT$ 1 = 1.10 when dividends were paid in 2011 and land bought by incurring mortgage
Translation are as follows:
TAIWAN COMPAY
TRANSLATION OF FINANCIAL STATEMENTS
FOR THE YEAR ENDED December 31, 2021
(In thousand of NT$)
NT$
Exchange Rates
Combined Statement of Comprehensive Income and Retained earnings
Revenues
22,000
1.16
Operating Expenses (Including Depreciation NT$1,000) 17,000
1.16
Net Income
5,000
Retained Earnings Jan. 1
2,000
Dividends
(4,000)
1.10
Retained Earnings, December 31
NT$ 3,000
=========
Statement of Financial Position
Cash
NT$10,000
1.08
Land
15,000
1.08
Building
48,000
1.08
Total Assets
NT$73,000
=========
Accounts Payable
NT$ 5,000
1.08
Mortgage Payable
45,000
1.08
Common stock
4,000
.90
Additional Paid In capital
16,000
.90
Retained Earnings
3,000
Translation Adjustments – OCI
Total Liabilities and Stockholders’ Equity
NTS 73,000
=========
Philippine Pesos
P 25,520
19,720
P 5,800
2,050
(4,400)
P3,450
========
P10,800
16,200
51,840
P78,840
=======
P 5,400
48,600
3,600
14,400
3,450
3,390
P78,840
=======
Computation of Translation Adjustments:
Net Assets at January 1, 2021
Net Income for 2021
Dividends for 2021
Net Assets at Dec.31 translated at rates:
During the year
At the end of the year
NT$ 22,000
5,000
(4,000)
NT$ 23,000
=========
1.20
1.16
1.10
P26,400
5,800
( 4,400)
1.08
P 27,800
24,840
Translation Adjustments for 2021
Translation Adjustments – OCI 1-1.2021
Accumulated Translation Adjustments Dec 31, 2021
P 2,960
( 6,350)
(P 3,390)
=======
Statement of Cash Flows Translation
For the year ended December 31, 2021
(In thousand of NT$)
NT$
Cash flow from Operating Activities:
Net Income
5,000
Depreciation
1,000
Operating Income before changes in Working capital
6,000
Decrease In accounts Receivable
2,000
Increase In Accounts Payable
2,000
Decrease In Unearned Rent
(1,000)
Net Cash Provided by Operating Activities
NT$9,000
Cash flows from Investing Activities
Purchase of Land
Cash Flows from Financing Activities:
Proceed from mortgage Payable
Dividends Paid
Total cash provided by financing activities
Increase in cash and Cash equivalent
Cash and cash equivalent at Beginning of the year
Cash and Cash equivalent at end if the year
Exchange rates
1.16
1.16
1.16
1.16
1.16
Philippine Pesos
P 5,800
1,160
P 6,960
2,320
2,320
( 1,160)
P 10,440
(5,000)
1.10
(P 5,500)
5,000
( 4,000)
1,000
5,000
5,000
10,000
======
1.10
1.10
P 5,500
( 4,400)
P1,100
P 4,800
6,000
P10,800
======