In Year $1,$ Victoria Textiles Limited decided that its Asian operations had expanded such that an Asian office should be established. The office would be involved in selling Victoria's current product lines; it was also expected to establish supplier contacts. In the Asian market, there were a number of small manufacturers of top$-$quality fabrics, particularly silk and lace, but from Victoria's home office in Ontario it was difficult to find and maintain these suppliers. To assist in doing so$,$ a wholly owned company, Victoria Textiles $($India$)$ Limited, was created, and a facility was established in India in January, Year $2.$ The new company, VTIL, was given the mandate from head office to buy and sell with other Victoria divisions and offices across Canada as if it were an autonomous, independent unit. To establish the company, an investment of $10,000,000$ Indian rupees $($INR$)$ was made on January $1,$ Year $2.$

VTIL proved to be quite successful, as shown in the following financial statements at December $31,$ Year $4.$ After one year of operations, VTIL had borrowed funds and expanded facilities substantially, as the initial market estimates had turned out to be quite conservative. However, during this time the rupee had fallen in value relative to the Canadian dollar. As a result, Victoria's management was somewhat confused about how to evaluate VTIL's success, given the changing currency values.

FINANCIAL STATEMENTS

BALANCE SHEETS

$($in Thousands of$,$ Indian Rupees$)$

Year $4$ Year $3$

Cash $3,3003,100$

Accounts receivable $2,5002,800$

Inventories $4,2003,400$

Prepaid expenses $2,1002,000$

Plant assets $($net$)7,9008,900$

$20,00020,200$

Current monetary liabilities $5001,200$

Unearned revenue $900500$

Long$-$term debt $6,0006,000$

$7,4007,700$

Common shares $10,00010,000$

Retained earnings $2,6002,500$

$20,00020,200$

INCOME STATEMENTS

Year $4$ Year $3$

Sales $20,20013,500$

Cost of sales $11,3006,300$

Gross profit $8,9007,200$

Operating expenses $4,4002,700$

Interest $700200$

Taxes $600410$

Net income $3,2003,890$

Additional Information

The exchange rate at January $1,$ Year $2,$ when VTIL was originally established, was $$0\mathrm{.}075$ per rupee.

Of the original investment of INR$10$ million, INR$4$ million was used to acquire plant and equipment, which is being depreciated on a straight$-$line basis over $10$ years.

At June $30,$ Year $3,$ an expansion was completed at a cost of INR$6$ million, which was financed entirely by a $6-$year note obtained from an Indian bank. Interest is to be paid semiannually. The exchange rate at July $1,$ Year $3,$ was $$0\mathrm{.}062$ per rupee. The new expansion is also to be depreciated on a straight$-$line basis over $10$ years. $($A half$-$year's depreciation was recorded in Year $3.)$ Depreciation expense of INR$1,000$ in Year $4$ and INR$700$ in Year $3$ is included in operating expenses.

Inventory is accounted for on the FIFO basis. The inventory at the end of Year $3$ and Year $4$ was acquired when the exchange rates were $$0\mathrm{.}045$ and $$0\mathrm{.}027$ per rupee, respectively.

Sales, purchases, and operating expenses were incurred evenly throughout the year, and the average exchange rate for the year was $$0\mathrm{.}031.$

The prepaid expenses and unearned revenue at December $31,$ Year $4,$ arose when the exchange rates were $$0\mathrm{.}03$ and $$0\mathrm{.}028$ per rupee, respectively.

Income taxes were paid in equal monthly instalments throughout the year.

Dividends of $3,100$ in Year $4$ and $600$ in Year $3$ were declared and paid each year on December $31.$

The foreign exchange rates per rupee at each of the following dates were as follows:

Dec. $31,$ Year $3$ $$0\mathrm{.}041$

June $30,$ Year $4$ $$0\mathrm{.}036$

Dec. $31,$ Year $4$ $$0\mathrm{.}025$

Required:

$($a$)$ Prepare a Canadian$-$dollar balance sheet at December $31,$ Year $4,$ and an income statement for the year then ended, assuming that VTIL's functional currency is as follows:

$($i$)$ The Canadian dollar

$($ii$)$ The Indian rupee

$($Note: There is insufficient information to translate retained earnings and accumulated foreign exchange adjustments. Plug these two items with the amount required to balance the balance sheet.$)($Negative amounts should be indicated by a minus sign. Enter your answers in thousands of dollars. Round your intermediate calculations and the final answers to the nearest whole dollar. Omit $ sign in your response.$)$

VICTORIA TEXTILES $($India$)$ Limited

BALANCE SHEET

December $31,$ Year $4($$$000$s$)$

$($i$)($ii$)$

Temporal Current rate

method method

Cash

Accounts receivable

Inventories

Prepaid expenses

Plant assets $($net$)$

Current monetary liabilities

Unearned revenue

Long$-$term debt

Common shares

Retained earnings $($deficit$)$ plug

VICTORIA TEXTILES $($India$)$ Limited

INCOME STATEMENT

for the Year Ended December $31,$ Year $4($$$000$s$)$

$($i$)($ii$)$

Temporal Current rate

method