Impact of Currency Appreciation on Financial Statements

Hard Multinational Operations Impact On Financial Statements

ABC Corporation is a multinational company that operates in multiple countries. It follows the International Financial Reporting Standards (IFRS) and has subsidiaries in both Europe and Asia. Due to fluctuations in foreign currency exchange rates, ABC Corporation's financial statements can be significantly affected by the translations of its foreign operations' financial results. The companies’ functional currencies differ from the reporting currency, requiring the application of specific translation methods.

When preparing its consolidated financial statements, ABC Corporation uses the closing rate method for translating its foreign subsidiaries' financial statements. If the Euro appreciates against the US Dollar during the reporting period, what is the most likely impact on ABC Corporation's consolidated financial statements?

Total assets reported will decrease because the subsidiaries' assets will be translated at a lower exchange rate.

Net income reported will increase due to higher revenues from foreign operations translated at a higher exchange rate.

Shareholder equity will increase because the translation gains will be recognized in other comprehensive income.

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