PROBLEM 3

Grupo Modela is the Uruguayan subsidiary of a U.S. manufacturing company. Its balance sheet for June 31 follows. The June 31st exchange rate between the U.S. dollar and the peso Uruguayo ($U) is $U30/$. Historic exchange rate at which plant and equipment were acquired and commons stock was issued is $U25/$. All inventory was acquired at the same rate of 31^st of June.

Using the data presented, assume that the peso Uruguayo dropped in value from $U30/$ to $U40/$ between June 31st and July 1st. Assuming no change in balance sheet accounts between these two days, calculate the gain or loss from translation by both the current rate method and the temporal method. Explain the translation gain or loss in terms of changes in the value of exposed accounts.

Balance Sheet (thousands of pesos Uruguayo, $U)
Assets		June 31st
Cash		70,000
Accounts receivable		130,000
Inventory		120,000
Net plant & equipment		240,000
		560,000
Liabilities & Net Worth
Current liabilities		40,000
Long-term debt		100,000
Capital stock		300,000
Retained earnings		120,000
		560,000