Sony Corporation reported the following in the summary of significant accounting

Question

Sony Corporation reported the following in the summary of significant accounting policies included in the company's 2004 annual report on Form20-F(p.f-18)

Translation of Foreign Currency

All asset and liability accounts of foreign subsidiaries and affiliates are translated in to japanese yen at approximate-year end current rate and all income and expense accounts are translated at rate that approximate those rates prevailing at the time of the transactions. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive income.

Foreign currency receivables and payables are translated at appropriate year-end current rates the resulting translation gain and loss are taken into income.

Required:

EXPLAIN in your own words the policies that Sony uses in reflecting in the financial statements the impact of changes in foreign exchange rates.

Reference

International Accounting by Timothy Doupnik, 3rd edition.

Explanation / Answer

Sony uses the following policies for recognizing the impact of foreign exchange rates as per the prescribed GAAP ;

1. In case of Sony's invetsment in a foreign subsidiary , the financial statement of the foreign subsidiary needs to be translated in reporting currency of the parent , that is Japanese yen in this case. The rate of conversion will be the exchange rate of the closing  date for Balance Sheet Items and for P/L items the exchange rate prevailing on the date of actual transaction shall be used. The exchange difference arising from the translation of foreign subsidiaries and affiliates financial statement will be recognized in Other Comprehensive Income in Parent company's book.

2. At the end of each rporting period , the Foreign Currency Monetary items like Receivables and Payables in the book will be retransalted using the closing exchange rate. The gain or loss arisisng out of such retransalation will be recognized in the profit and loss statement.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.