Translation Exposure CHAPTER 11 329 b Exchange rates for translating Siam Toy's balance chapter for sheet into U.S. dollars are: on January B40.00/s $1.2000/e April 1st exchange rate after 25% ecalculate B30.00/$ devaluation. March 31st exchange rate, before 25% r January devaluation. All inventory was acquired e current at this rate. 240,000 earnings 120,000 B20.00/$ Historic exchange rate at which plant loss? $U540,000 $U540,000 and equipment were acquired. ments? Setermine Montevideo's contribution to the trans- The Thai baht dropped in value from B30/$ to B40/$ ter for Jation exposure of its parent on January 1st, using between March 31 and April 1. Assuming no change in at the the current rate method. balance sheet accounts between these two days, calcu- it 11.4 b. Calculate Montevideo's contribution to its parent's late the gain or loss from translation by both the cur- rent rate method and the temporal method. Explain ather translation loss if the exchange rate on December 31st is $U20/US$. Assume all peso Uruguayo accounts the translation gain or loss in terms of changes in the ope's value of exposed accounts. with remain as they were at the beginning of the year. 6. Tristan Narvaja, S.A. (B). Using the same balance sheet 9. Bangkok Instruments, Lid. (B). Using the original rate as in Problem 5, calculate Tristan Narvaja's contribu- data provided for Bangkok Instruments, assume that tion to its parent's translation loss if the exchange rate the Thai baht appreciated in value from B30/$ to B25/$ its? on December 31 is $U22/$. Assume all peso accounts between March 31 and April 1. Assuming no change in he remain as they were at the beginning of the year. balance sheet accounts between those two days, calcu- late the gain or loss from translation by both the cur- er 7. Tristan Narvaja, S.A. (C). Calculate Tristan Narvaja's rent rate method and the temporal method. Explain contribution to its parent's translation gain or loss the translation gain or loss in terms of changes in the using the current rate method if the exchange rate value of exposed accounts. on December 31 is $U12/$. Assume all peso accounts 10. Cairo Ingot, Ltd. Cairo Ingot, Ltd., is the Egyptian sub- remain as they were at the beginning of the year. sidiary of Trans-Mediterranean Aluminum, a British 8. Bangkok Instruments, Lid. (A). Bangkok Instruments, multinational that fashions automobile engine blocks Lid., the Thai subsidiary of a U.S. corporation, is a seis- from aluminum. Trans-Mediterranean's home report- mic instrument manufacturer. Bangkok Instruments ing currency is the British pound. Cairo Ingot's Decem- manufactures instruments primarily for the oil and gas ber 31 balance sheet is shown below. At the date of industry globally, though with recent commodity price this balance sheet the exchange rate between Egyptian increases of all kinds-including copper-its business pounds and British pounds sterling was LE5.50/UKE. has begun to grow rapidly. Sales are primarily to mul- Assets Liabilities and Net Worth tinational companies based in the United States and Accounts Europe. Bangkok Instruments' balance sheet in thou- Cash LE 16,500,000 payable EE 24,750,000 sands of Thai baht (B) as of March 31 is as follows: Accounts Long-term receivable 33,000,000 debt 49,500,000 Bangkok Instruments, Ltd. Invested Balance Sheet, March 1, thousands of Thai bahts Inventory 49,500,000 capital 90,750,000 Assets Liabilities and Net Worth Net plant and Accounts equipment 66,000,000 Cash B24,000 payable B18,000 EE165,000,000 LE165,000,000 Accounts Bank loans 60,000 What is Cairo Ingot's contribution to the translation receivable 36,000 exposure of Trans-Mediterranean on December 31, Common using the current rate method? Calculate the translation Inventory 48,000 stock 18,000 exposure loss to Trans-Mediterranean if the exchange Net plant & Retained equipment earnings 72,000 rate at the end of the following quarter is LE6.00/f. 60,000 Assume all balance sheet accounts are the same at the B168,000 B168,000 end of the quarter as they were at the beginning
