Nation Resorts Ltd (Nation) is a U.S,-based operator of destination vacation resorts, Resorts are divided into three types: Winter, which are located at ski mountains; Golf, located on championship courses in locations such as Arizona; and Seaside located at beaches with ocean, and other activities available, The three types of resorts generally attract different types of vacationers, and provide different vacation packages for different vacation budgets, Although the Winter and Golf resorts are somewhat counter-seasonal, the company still suffers from the risk of the U,S, economy as well as the risk of unfavorable local weather conditions (lack of snow or sun), To diversify and reduce these risks, Nation started purchasing properties in other geographic areas including Europe and Central America.

Nation made its first foreign investment when it bought a resort in Jamaica on l May 2008, Initially Nation provided managers to assist in operating the resort but then hired local Jamaicans into their management development program, and one was recently appointed to a senior position at the resort, Nation invested in building and up grading facilities with the initial expansion financing provided by Nation's U,S, bank, Concerned about the high rate of inflation in Jamaica which at the time of purchase had averaged 20% per annum over the previous three years, Nation kept excess funds in US, dollars, Vacation packages are sold primarily in the United States and prices reflect competitive conditions in the U,S, vacation market. The resort uses local labor and supplies and is expected to be profitable for the first time this year. Inflation has now declined to 14% per annum, Nation expects to be able to reinvest any profits in the resort and start using a local bank for ongoing financing needs.
On l July 2010 Nation acquired its first European resort, Val Blanc SA, a ski resort in the Alps region of France, Nation paid €28 million for l00% of the company, The resort attracts skiers primarily from France and other European countries, The transition has gone very well with Nation leaving the local managers in place to make all operating and financial decisions, To date the only financial contribution by Nation has been the initial equity investment, Financial statements for the ski resort at acquisition and for the six months since then are shown in Exhibit l.

Paul Nakiska, a business analyst with Nation, is meeting with Nation’s Manager of Financial Reporting. Max Chara, to discuss how the company should account for the two foreign resorts in the 2010 financial statements, and the impact the resorts will have on Nation's reported results. Nation has a 31 0ecember yearend and prepares its financial statements according to U.S. GAAP.

In preparation for the meeting, Nakiska's first task was to prepare the purchase price allocation of the Val Blanc acquisition using the acquisition method. He has also gathered some exchange rate information related to the two resorts, Exhibit 2.

Nakiska started the meeting:

I suggest we use the current rate method for both of our foreign subsidiaries because that will simplify our financial reporting. The current rate method also allows the key metrics we use to valuate performance; the current ratio, fixed asset turnover and operating margin, to be the same after translation as before.

Chara replied：

I am not so concerned about the translated metrics, because we evaluate the performance of each resort in its local currency; however, I am concerned about the effect on Nation's consolidated net income and return on equity.

If we use the temporal method for the resort in France,. we can take advantage of the strengthening Euro and report the translation gain on the income statement.

I am also not so concerned about using the same method for all subsidiaries, if using different methods will help increase our net income.

Nakiska agreed to calculate the effects. of the various translation methods and of the Val Blanc acquisition on the financial statements and send the report to Chara.