Foreign Currency Translation Adjustment under Current Rate Method and U.S. GAAP

• Current Rate Method
• U.S. GAAP

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• A parent company is a U.S. company.
• A foreign subsidiary is self-contained, independent company in Switzerland.
• Current Rate Method
• Translation gain/loss is reported on B/S.
• Also, as a pre-condition,
• Taxes paid = 0
• Dividends paid = 0
• Inventory: FIFO

Exchange Rate

Date	USD/CHF
1/1/2008 (*1)	0.77
12/31/2008	0.85
Average 2008	0.80

(*1) A subsidiary in Switzerland was established.

I/S of foreign subsidiary for 2008

(in CHF)	CHF	USD/CHF	USD
Sales	7,000	A 0.80	5,600
COGS	-6,800	A 0.80	-5,440
Depreciation	-100	A 0.80	-80
Net income	100	A 0.80	80

B/S of foreign subsidiary as of 12/31/2008

	CHF	USD/CHF	USD
Assets
Cash and accounts receivable	600	C 0.85	510
Inventory	500	C 0.85	425
PP & E	600	C 0.85	510
Total assets	1,700	C 0.85	1,445
Liabilities and equity
Account payable	200	C 0.85	170
Long-term debt	100	C 0.85	85
Common stock	1,300	H 0.77	1,001
Retained earnings	100		(*2) 80
Foreign currency translation adjustment			(*4) 109
Total liabilities and owner's equity	1,700		(*3) 1,445

(*2) Retained earnings = Beginning retained earnings (H) + Translated net income (A) - Dividends paid (H)
= 0 + 80 (from I/S) - 0 = 80
(*3) Should be the same as Total assets to balance.
(*4) 1,445 - (170+85+1,001+80) = 109