The balance sheet for an Egyptian subsidiary of a British company appears

below. The home reporting currency is the British pound $($UK$),$ while the subsidiary uses

the Egyptian pound $($E$).$ At the date of the balance sheet preparation, the exchange rate was

$$E$5\mathrm{.}50/$UK$.$ The relevant exchange rates for inventory and PPE $($when necessary$)$ were

$5$EGP$/$GBP and $4$EGP$/$GBP$,$ respectively. For the current rate method only, the appropriate

exchange rate for capital $($retained earnings and stock$)$ was the weighted average figure of

$4\mathrm{.}8$EGP$/$GBP$.$ Complete the following tasks.

a$.$ Prepare the year$-$end balance sheets using both the current and temporal rate methods.

$($You will need to calculate a CTA account under one of these methods and adjust capital to

balance the balance sheet under the other method.$)$

b$.$ Calculate net translation exposure $($in GBP$)$ under both methods.

c$.$ Assume that $3$ months later the exchange rate has changed to $$E$6\mathrm{.}4/$UK and that none of

the balances change. Build a new set of balance sheets at this new exchange rate.

d$.$ Compute the loss or gain from translation due under both methods.

Assets $($E$)$ Liabilities and Equity $($E$)$

Cash $16,500,000$ AP $24,750,000$

AR $33,000,000$ L$-$t debt $49,500,000$

Inventory $49,500,000$ Capital $90,750,000$

Net PPE $66,000,000$

$$E$165,000,000$E$165,000,000$