Question $4(15$ points$)$

VA $-$ Salt is $100\%$ owned by Pepper Corp., a Canadian corporation. Salt was

purchased by Pepper on January $1,20$X$6$ when the exchange rate was $$1\mathrm{.}20.$ Salt

operates in a foreign country, where then currency is foreign currency units $($FCU$).$

In $20$X$8,$ sales revenue, purchases of inventory and other expenses were incurred

evenly throughout the year. Interest expense was accrued throughout the year. Salt

maintains its inventory at cost$.$ The beginning inventory was purchased when the

exchange rate was $$0\mathrm{.}93.$ The ending inventory was purchased on November $1,$

$208,$ when the exchange rate was $$0\mathrm{.}87.$ The equipment was acquired in $205$

when the exchange rate was $$1\mathrm{.}10.$ The land was purchased in $205$ when the

exchange rate was $$1\mathrm{.}15.$ The bonds were issued at the end of $206,$ and mature at

the end of $2010.$ The exchange rate at the end of $206$ was $$1\mathrm{.}05.$ Dividends

were declared and paid at December $31$ of each year.

The relevant exchange rates for Salt Co$.,$ expressed in FCUs, are given below. Salt's

opening inventory balance at January $1,20$X$8$ was FCU $200,000.$ Salt has an

opening net monetary liability position at January $1,20$X$8$ of FCU $1,900,000$

Exchange rates:

December $31,207,C$$$0\mathrm{.}92=$ FCU$1\mathrm{.}00$

Average for $208,C$$$0\mathrm{.}89=$ FCU$1\mathrm{.}00$

December $31,208,C$$$0\mathrm{.}86=$ FCU$1\mathrm{.}00$

Required:

Part $1$: Assuming Salt's functional currency is the Canadian dollar,

b$.$ prepare and analysis of translation gains and losses to determine the

exchange gain$/$loss to be disclosed on the $20$X$8$ income statement. $(7$ marks$)$

c$.$ Prepare a translated Income Statement for the year ended $20$X$8.(5$ marks$)$

Part $2$: Assuming Salt's functional currency is the FCU, prepare the asset section of

the translated balance sheet as at December $31,20$X$8.(3$ marks$)$