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) Cash Accounts receivable Inventories Prepaid expenses Plant assets (net) Current monetary liabilities Unearned revenue Long-term debt Common shares Retained earnings INCOME STATEMENTS Year 4 Year 3 Sales 18,880 13,400 Cost of sales 10,800 6,400 Gross profit 8,080 7,000 Operating expenses 4,400 3,000 Interest 200 400 Taxes 400 450 Net income 3,080 3,150 Year 4 Year 3 3,000 2,800 3,100 3,100 4,900 3,100 1,500 2,400 7,900 8,900 20,400 20,300 1,020 1,000 600 300 6,000 6,000 7,620 7,300 10,000 10,000 2,780 3,000 20,400 20,300