Question

Party Co.'s wholly owned subsidiary, Smarty Corp., maintains its accounting records in German marks. Because all of Smarty's branch offices are in Switzerland, its functional currency is the Swiss franc. Remeasurement of Smarty's Year 20x2 financial statements resulted in a $7,600 gain, and translation of its financial statements resulted in an $8,100 gain. Which amount should Party report as a foreign exchange gain in its income statement for the year ended December 31, 20x2?

$0
$7,600
$8,100
$15,700

Answer 1

$7,600

Step-by-step explanation:

Since all of Smarty's branch offices are in Switzerland, its functional currency is the Swiss franc.

Remeasurement of Smarty's Year 20x2 financial statements resulted in a $7,600 gain, and translation of its financial statements resulted in an $8,100 gain.

The amount that Party should report as a foreign exchange gain in its income statement for the year ended December 31, 20x2 is $7600.

Remeasurement gain arises through the process of measuring financial results that are stated in another currency (subsidiary currency) into the functional currency (Head office currency)

According International Financial Reporting Standards, Exchange rate gain or loss on a monetary item that forms part of a reporting entity’s net investment in a foreign operation shall be recognized in profit or loss