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Cumulative Translation Adjusment

Omar Sheikh's Profile

UK Branch
Balance Sheet
Dec. 31, 2012

Currencies:::: Pounds - Rate - Dollars
Cash <128650 - 1.65 - 212273>
Accounts receivable, net < 172500 - 1.65 - 284625>
Inventories <185650 - 1.65 - 306323 >
Prepaid expenses < 8250 - 1.65 - 13613>
Property, plant & equipment, net < 212435 - 1.65 - 350518>

Total Assets <707485 - - 1167352

Accounts payable < (55000) - 1.65 - (90750)>
Accrued expenses < (15000) - 1.65 - (24750)>
Retained earnings 12/31/12 < (637485) - above - (966290)>

Subtotal < --1081790>

Cumulative translation adjustment < - above - 85562>
Total < (707485) - - ( 1167352)>

In the above balance sheet Cumulative translation adjustment = (Accounts payable + Accrued expenses + Retained earnings 12/31/12) - (Total assets). Accounts payable & Accrued expenses are the liabilities so after deducting the liabilities from total asset will result net asset where in this balance sheet it has resulted a cumulative translation adjustment. Moreover, retained earnings is an asset it doesn't make any sense to deduct an asset from total asset. Is there anything that I'm missing or the balance sheet is wrong?

Answers

Victor Shah
Title: Account Manager
Company: FlowRocket, LLC
(Account Manager, FlowRocket, LLC) |

The balance sheet may be right, if all accounting is done properly. The Cumulative translation adjustment balance is nothing but a retained earning of Foreign Exchange gain/loss. To derive your Net Assets, you need not deduct either Retained Earnings or CTA.

Net Assets = Total Assets less Total Liabilities.
Let me know if this helps.

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