medium · Financial Accounting accounting-cycle-financial-statements
A multinational firm with a U.S. dollar reporting currency has a subsidiary in Japan. The subsidiary's functional currency is the Japanese Yen. During the year, the Yen depreciates significantly against the Dollar.
What is the impact on the consolidated financial statements?
- The subsidiary must instead switch to the remeasurement (temporal) accounting method now.
- A negative Cumulative Translation Adjustment (CTA) is recorded in Other Comprehensive Income (OCI).
- No impact occurs at all, since the subsidiary's Yen-denominated stockholders' equity is unchanged.
- A significant translation loss is recognized directly within the consolidated income statement each period.
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