Non-autonomous foreign operation: translation issues
Ace, a South Korean electronics company, has a subsidiary, Diamond, in Puerto Grande, a Caribbean island. Diamond assembles computer hardware for sale in the region. Although Diamond keeps its accounts in doblón, the local currency, its functional currency is the South Korean won as it purchases parts and receives financing from its South Korean parent.
As a result of depressed economic conditions in the industry in x2, Diamond is forced to mark down its inventory to market value at 31 December. In addition, a year-end impairment review reveals that the recoverable amount of its plant and equipment is below the carrying amount.
(In millions of doblón) At 31 Dec x2
Inventory, at cost 30
Valuation adjustment -2
Inventory, at LOCOM 28
Plant and equipment, at cost 120
Accumulated depreciation -24
Accumulated impairment losses -15
Plant and equipment, net 81
Puerto Grande is an oil and gas producer and the doblón has strengthened against the won and other currencies in recent years as new reserves have been discovered. Key exchange rate data are given below:
|
Start x1 (purchase of plant and equipment)
|
162 won : 1 doblón
|
|
Average in Qtr 3, x2 (purchase of end-x2 inventory)
|
189
|
|
Average for x2
|
186
|
|
31 December x2
|
196
|
Required
Mae-Young, Ace's controller, is preparing the company's consolidated accounts for x2. She wants to know how to translate Diamond's fixed assets and inventory into won for consolidation purposes. Advise her.