Remeasuring financial statements

A question from Yahoo! Answers:

Why are financial statements “remeasured” when the functional currenty is the US Dollar?

How are “dollars” converted into “dollars”?

Financial statements are remeasured when the functional currency is the U.S. dollar because SFAS 52 says so. But you are not converting dollars to dollars when remeasuring; you are converting the local currency (whatever it is) into dollars…

Let’s say you are a U.S. company with a manufacturing facility in Mexico. You choose the U.S. dollar as the functional currency for your Mexican operation because it is an integrated operation (i.e., it does not sell anything in Mexico; in fact, it does not sell anything to anyone, it just manufactures parts for the parent company). Meanwhile, you are still paying wages, rents, and local suppliers’ bills in Mexican pesos. So SFAS 52 requires you to remeasure your peso-denominated reporting into dollars for consolidation with the parent company’s books…

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