Question

Shopwell is a U.K. grocery chain that is a subsidiary of Premium Products, a U.S. company. Premium’s fiscal year ends January 31. On February 1, 2018, Shopwell’s inventory balance consisted of £100,000 purchased when the exchange rate was $1.20/£, and £300,000 purchased when the exchange rate was $1.23/£. Shopwell made purchases of £5,000,000 evenly throughout fiscal 2019, and its inventory on January 31, 2019, consisted of £350,000 purchased when the exchange rate was $1.29/£. Shopwell’s sales of inventory occurred relatively evenly throughout fiscal 2019. The average exchange rate for fiscal 2019 was $1.26/£, and the January 31, 2019, exchange rate was $1.30/£.

Required

a. Assume that Shopwell’s functional currency is the pound. Calculate Shopwell’s translated ending inventory at January 31, 2019, and its translated cost of sales for fiscal 2019.

b. Now assume that Shopwell’s functional currency is the U.S. dollar. Calculate Shopwell’s remeasured ending inventory at January 31, 2019, and its remeasured cost of sales for fiscal 2019.

		a. Translated	b. Remeasured
Ending inventory		$Answer 455,000	$Answer 451,500
Cost of sales		$Answer XXXXX	$Answer XXXXX

Answer 1

Answer :-

a. Assume that Shopwell’s functional currency is the pound. Calculate Shopwell’s translated ending inventory at January 31, 2019, and its translated cost of sales for fiscal 2019.

Particulars	Amount
Ending inventory	= £350,000 * $1.30/£ = $455,000
Opening inventory	= 100,000 + 300,000 = £400,000
Purchases	£5,000,000
Closing inventory	£350,000
Cost of sales	= £5,000,000 + [ £400,000 - £350,000 ] =  £5,000,000 + £50,000 = £5,050,000
Translated Cost of sales	= £5,050,000 * $1.26 / £ = $6,363,000

b. Now assume that Shopwell’s functional currency is the U.S. dollar. Calculate Shopwell’s remeasured ending inventory at January 31, 2019, and its remeasured cost of sales for fiscal 2019.

Particulars	Amount
Ending inventory	= £350,000 * $1.29/£ = $451,500
Opening inventory	= £100,000 * $1.20/£ = $120,000
	= £300,000 * $1.23/£ = $369,000
	= 369,000 + 120,000 = $489,000
Purchases	£5,000,000 * $1.26 / £ = $6,300,000
Closing inventory	$451,500
Translated Cost of sales	= $6,300,000 + $489,000 - $451,500 = $6,337,500