Company A is headquartered in Country A and reports in the currency unit of Country A, the

Question:

Company A is headquartered in Country A and reports in the currency unit of Country A, the Apeso. Company B is headquartered in Country B and reports in the currency unit of Country B, the Bol. Company A and B hold identical assets, Apeso100 and Bol100, at the beginning and end of the year. At the beginning of the year, the exchange rate is Apeso1 = Bol1.25. At the end of the year, the exchange rate is Apeso1 = Bol 2. No transactions occur during the year.

Required:

a. Calculate total assets reported by Company A and Company B at the beginning and at the end of the year. Which company has a gain and which has a loss for the year?

b. Does your answer to part a. make sense? Would it matter if Companies A and B intended to repatriate their respective foreign assets rather than keep them invested permanently abroad?

c. What is the lesson for statement readers from all of this? Is it all a shell game?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...