Loading...

Messages

Proposals

Stuck in your homework and missing deadline? Get urgent help in $10/Page with 24 hours deadline

Get Urgent Writing Help In Your Essays, Assignments, Homeworks, Dissertation, Thesis Or Coursework & Achieve A+ Grades.

Privacy Guaranteed - 100% Plagiarism Free Writing - Free Turnitin Report - Professional And Experienced Writers - 24/7 Online Support

Integrated vs self sustaining foreign subsidiary

20/03/2021 Client: saad24vbs Deadline: 2 Day

—Anonymous

LEARNING OBJECTIVES

■ Examine how the process of consolidation of a multinational firm’s financial results creates translation exposure

■ Illustrate both the theoretical and practical differences between the two primary methods of translating or remeasuring foreign currency-denominated financial statements

■ Understand how translation can potentially alter the value of a multinational firm

■ Explore the costs, benefits, and effectiveness of managing translation exposure

Translation exposure, the second category of accounting exposures, arises because financial statements of foreign subsidiaries—which are stated in foreign currency—must be restated in the parent’s reporting currency so that the firm can prepare consolidated financial statements. Foreign subsidiaries of U.S. companies, for example, must restate foreign currency-denominated financial statements into U.S. dollars so that the foreign values can be added to the parent’s U.S. dollar-denominated balance sheet and income statement. Using our example U.S. firm, Ganado, this is shown conceptually in Exhibit 11.1. This accounting process is called translation. Translation exposure is the potential for an increase or decrease in the parent’s net worth and reported net income that is caused by a change in exchange rates since the last translation.

Although the main purpose of translation is to prepare consolidated financial statements, translated statements are also used by management to assess the performance of foreign subsidiaries. While such assessment by management might be performed using the local currency statements, restatement of all subsidiary statements into the single “common denominator” of one currency facilitates management comparison. This chapter reviews the predominate methods used in translation today, and concludes with the Mini-Case, McDonald’s, Hoover Hedges, and Cross-Currency Swaps, illustrating how one major multinational manages its investment and translation risks.

EXHIBIT 11.1 Ganado’s Cross-Border Investments and Consolidation

Overview of Translation

There are two financial statements for each subsidiary that must be translated for consolidation: the income statement and the balance sheet. Statements of cash flow are not translated from the foreign subsidiaries. The consolidated statement of cash flow is constructed from the consolidated statement of income and consolidated balance sheet. Because the consolidated results for any multinational firm are constructed from all of its subsidiary operations, including foreign subsidiaries, the possibility of a change in consolidated net income or consolidated net worth from period to period, as a result of a change in exchange rates, is high.

For any individual financial statement, internally, if the same exchange rate were used to remeasure each and every line item on the individual statement—the income statement and balance sheet—there would be no imbalances resulting from the remeasurement. But if a different exchange rate were used for different line items on an individual statement, an imbalance would result. Different exchange rates are used in remeasuring different line items because translation principles are a complex compromise between historical and current values. The question, then, is what is to be done with the imbalance?

Subsidiary Characterization

Most countries specify the translation method to be used by a foreign subsidiary based on its business operations. For example, a foreign subsidiary’s business can be categorized as either an integrated foreign entity or a self-sustaining foreign entity. An integrated foreign entity is one that operates as an extension of the parent company, with cash flows and general business lines that are highly interrelated with those of the parent. A self-sustaining foreign entity is one that operates in the local economic environment independent of the parent company. The differentiation is important to the logic of translation. A foreign subsidiary should be valued principally in terms of the currency that is the basis of its economic viability.

It is not unusual for a single company to have both types of foreign subsidiaries, integrated and self-sustaining. For example, a U.S.-based manufacturer, which produces subassemblies in the United States that are then shipped to a Spanish subsidiary for finishing and resale in the European Union, would likely characterize the Spanish subsidiary as an integrated foreign entity. The dominant currency of economic operation is likely the U.S. dollar. That same U.S. parent may also own an agricultural marketing business in Venezuela that has few cash flows or operations related to the U.S. parent company or U.S. dollar. The Venezuelan subsidiary may source all inputs and sell all products in Venezuelan bolivar. Because the Venezuelan subsidiary’s operations are independent of its parent, and its functional currency is the Venezuelan bolivar, it would be classified as a self-sustaining foreign entity.

Homework is Completed By:

Writer Writer Name Amount Client Comments & Rating
Instant Homework Helper

ONLINE

Instant Homework Helper

$36

She helped me in last minute in a very reasonable price. She is a lifesaver, I got A+ grade in my homework, I will surely hire her again for my next assignments, Thumbs Up!

Order & Get This Solution Within 3 Hours in $25/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 3 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

Order & Get This Solution Within 6 Hours in $20/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 6 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

Order & Get This Solution Within 12 Hours in $15/Page

Custom Original Solution And Get A+ Grades

  • 100% Plagiarism Free
  • Proper APA/MLA/Harvard Referencing
  • Delivery in 12 Hours After Placing Order
  • Free Turnitin Report
  • Unlimited Revisions
  • Privacy Guaranteed

6 writers have sent their proposals to do this homework:

Helping Hand
Engineering Help
Top Rated Expert
A+GRADE HELPER
Financial Assignments
Homework Tutor
Writer Writer Name Offer Chat
Helping Hand

ONLINE

Helping Hand

I have read your project details. I can do this within your deadline.

$19 Chat With Writer
Engineering Help

ONLINE

Engineering Help

You can award me any time as I am ready to start your project curiously. Waiting for your positive response. Thank you!

$37 Chat With Writer
Top Rated Expert

ONLINE

Top Rated Expert

I will cover all the points which you have mentioned in your project details.

$40 Chat With Writer
A+GRADE HELPER

ONLINE

A+GRADE HELPER

Hello, I an ranked top 10 freelancers in academic and contents writing. I can write and updated your personal statement with great quality and free of plagiarism

$32 Chat With Writer
Financial Assignments

ONLINE

Financial Assignments

Hello, I an ranked top 10 freelancers in academic and contents writing. I can write and updated your personal statement with great quality and free of plagiarism

$28 Chat With Writer
Homework Tutor

ONLINE

Homework Tutor

Hello, I an ranked top 10 freelancers in academic and contents writing. I can write and updated your personal statement with great quality and free of plagiarism

$15 Chat With Writer

Let our expert academic writers to help you in achieving a+ grades in your homework, assignment, quiz or exam.

Similar Homework Questions

Texting and driving persuasive speech - Healthcare Problem-Solving Using Analytics - 11 pavia place augustine heights - Stopping by Woods on a Snowy Evening Meaning - How is contribution margin ratio useful in planning business operations - Fowling net crossword clue - Str 581 week 5 quiz - Bluebeam insert page numbers - Sap pp training syllabus - An integrated labor management system for taco bell - Perth solicitors property centre - Computer a history of the information machine pdf - Analytic - Need this by tomorrow the 20th. details are posted. - Forensic files prints among thieves worksheet answers - English Comp 2 Week 6 - Leah totton plastic surgery - Critique - Of - Egan - Et - Al - 2011 - Arts - And - Humanities - Assignment - Help - What are the six elements of a typical scope statement - Staying Competitive in a Global Market - Everyday use analysis essay - Gauze mat used in laboratory - How to use jdsu hst 3000 - Relationship between absolute pressure gauge pressure and atmospheric pressure - Characteristics of the four market structures - Module 09 Discussion - Lasik Surgery - Dodecahedron net with tabs - Baby shower pass the prize rhyme - 5 s's of key retailing - Week three discussion - Sample checking account statement - Week 11 Discussion - Gai tronics auteldac 5 - Discussion - Castle clash walla walla traits - A minnesota farmer buys a new tractor made in iowa by a german company. as a result - HIMA350 Week 5 Forum Post - Unfair labour practice promotion - Dove primary care centre - Average number of televisions per household - The mass of oxalic acid crystals - What are the two basic functions used in encryption algorithms - Art labeling activity plasma membrane transport - Picture of prokaryotic cell with labels - Reflection (R1) - Change 4 life 2011 - If an object is rotating clockwise, this corresponds to a _____ angular velocity. - Straighterline college algebra final exam - Carter farquar mediation and family law - Ccnp security secure 642 637 official cert guide - Melton city council water - Articulating your philosophy of nursing - The patriot reverend oliver - Swot analysis in paragraph form - Charlie's father jasper jones - The pacific manufacturing company operates a job order costing system - Reflective Journal - Electron shell configuration of barium - Lab worksheet optics physics - Grade 5 words to spell - Deborah brandt sponsors of literacy - Www selectmysubject com au student - Project Plan Components IVR - Aseptic technique lab report answers - The liabilities section of o brian's balance sheet - Strategy and hrm at delta airlines - Theoretical melting point of acetanilide - A highway is made of concrete slabs that are - Fdi dental numbering system - Faculty of engineering malta - Tone of greasy lake - An eccentric force p is applied as shown - Business model canvas assignment - Evidence-Based Practice Case Study. - Apple iphone not made in america case study - Neil kokemuller articles - Cisco mds smart zoning - Joints and their movements activity worksheet - Nursing Discussion - Which rule describes a transformation across the x axis - Nursing diagnosis for nephrostomy tube - How to find net volume - 1984 we are the dead - La familia worksheet answers - Assignment ethics in accounting linbarger company - CHAPTER READING REFLECTIONS JOURNAL CHAPTERS 7-9 - Video analysis 3 - Lakshmi narasimha runa vimochana stotram - Reliability vs accuracy vs validity - Biology chapter 5 the working cell worksheet answers - British geological survey boreholes - Balance c5h9o o2 co2 h2o - Loss allowance ifrs 9 - Business continuity management questions and answers pdf - Grade 9 math worksheets - GOVT 480 DB FORUM 2 THREAD DUE 9/04/2020 - Important court cases apush - Our vanishing night by verlyn klinkenborg - Wade davis ted talk endangered cultures - 1-1