Remeasurement converts foreign currencies into the subsidiary’s functional currency. It is used when a subsidiary maintains its books and records in a currency other than its functional currency. Remeasurement is done using exchange rates on the date of the transaction or the average monthly exchange rate. The purpose of remeasurement is to ensure that the subsidiary’s financial statements are presented in its functional currency.
Key Facts
- Remeasurement focuses on converting foreign currencies into the subsidiary’s functional currency.
- It is used when a subsidiary maintains its books and records in a currency other than its functional currency.
- Remeasurement is typically done using exchange rates on the date of the transaction or the average monthly exchange rate.
- The purpose of remeasurement is to ensure that the subsidiary’s financial statements are presented in its functional currency.
Translation:
- Translation focuses on converting the functional currency of a subsidiary into the reporting currency of the parent company.
- It is used to consolidate the financial statements of subsidiaries with the parent company’s financial statements.
- Translation is typically done using exchange rates at the balance sheet date or average rates for the period.
- The purpose of translation is to present the financial statements of the subsidiary in the reporting currency of the parent company.
Contrast between remeasurement and translation:
- Remeasurement converts foreign currencies into the subsidiary’s functional currency, while translation converts the functional currency of the subsidiary into the reporting currency of the parent company.
- Remeasurement is focused on the subsidiary’s financial statements, while translation is focused on the consolidation of financial statements.
- Remeasurement is typically done using transaction-specific exchange rates, while translation uses balance sheet date or average rates[3].
Purpose of Translation
Translation converts the functional currency of a subsidiary into the reporting currency of the parent company. It is used to consolidate the financial statements of subsidiaries with the parent company’s financial statements. Translation is done using exchange rates at the balance sheet date or average rates for the period. The purpose of translation is to present the financial statements of the subsidiary in the reporting currency of the parent company.
Contrast Between Remeasurement and Translation
Remeasurement converts foreign currencies into the subsidiary’s functional currency, while translation converts the functional currency of the subsidiary into the reporting currency of the parent company. Remeasurement is focused on the subsidiary’s financial statements, while translation is focused on the consolidation of financial statements. Remeasurement is typically done using transaction-specific exchange rates, while translation uses balance sheet date or average rates.
Conclusion
Remeasurement and translation are two important accounting procedures used to convert foreign currencies into a common currency. Remeasurement is used to convert foreign currencies into the subsidiary’s functional currency, while translation is used to convert the functional currency of the subsidiary into the reporting currency of the parent company.
References
- https://www.universalcpareview.com/ask-joey/what-is-the-difference-between-a-foreign-currency-transaction-and-foreign-currency-remeasurement-translation/
- https://www.universalcpareview.com/ask-joey/what-is-the-difference-between-foreign-currency-remeasurement-and-translation/
- https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/foreign_currency/foreign_currency__2_US/chapter_5_translatin_US/54_translation_when__US.html
FAQs
What is the purpose of remeasurement?
Remeasurement converts foreign currencies into the subsidiary’s functional currency. It ensures that the subsidiary’s financial statements are presented in its functional currency.
When is remeasurement used?
Remeasurement is used when a subsidiary maintains its books and records in a currency other than its functional currency.
What is the purpose of translation?
Translation converts the functional currency of a subsidiary into the reporting currency of the parent company. It is used to consolidate the financial statements of subsidiaries with the parent company’s financial statements.
When is translation used?
Translation is used to consolidate the financial statements of subsidiaries with the parent company’s financial statements.
What is the difference between remeasurement and translation?
Remeasurement converts foreign currencies into the subsidiary’s functional currency, while translation converts the functional currency of the subsidiary into the reporting currency of the parent company.
What exchange rates are used for remeasurement?
Remeasurement is typically done using transaction-specific exchange rates or the average monthly exchange rate.
What exchange rates are used for translation?
Translation is typically done using exchange rates at the balance sheet date or average rates for the period.
Why is it important to remeasure and translate foreign currencies?
Remeasurement and translation are important because they ensure that the financial statements of subsidiaries are presented in a consistent manner, allowing for easy consolidation with the parent company’s financial statements.