Question

In: Accounting

ABC company had the following balance sheet in millions of pesos on DEC. 31 2013 Assets...

ABC company had the following balance sheet in millions of pesos on DEC. 31 2013

Assets

Cash 400

Acct rec. 200

Inventory 800

Net plant and equipment 600

Liabilities and net worth

Acct pay 500

Long Term debt 300

Capital stock 400

Retained earnings 800

Relevant exchange rate

$.08/peso inventory and capital stock was issued at this rate

$.10/peso plant & equipment LT debt

Ex rate for 31 dec 2013

$.12/peso ex rate 01 Jan 2014

As of 2013 assume retained earnings under current rate was $80 million

under the current rate method, what is the value of the CTA account on January 1 2014?

under the temporal method, what is the exchange gain or loss between dec 31 2013 and January 1 2014?

Under the temporal method, what is the value of the exposed assets in dollars on December 31, 2013?

Expert Solution

Current rate method

Assets	Amount in millions of pesos	Exchange rate	Amount in millions of $
Cash	400	$0.12/peso	$48
Acct. rec.	200	$0.12/peso	$24
Inventory	800	$0.12/peso	$96
Net plant and equipment	600	$0.12/peso	$72
Total Assets			$240

Liabilities & net worth
Acct pay.	500	$0.12/peso	$60
Long term debt	300	$0.12/peso	$36
CTA			$32
Capital Stock	400	$0.08/peso	$32
Retained earnings	800		$80
Total Liabilities and net worth			$240

CTA account on January 1 2014 = $32 millions

Temporal rate method

Assets	Amount in millions of pesos	Exchange rate	Amount in millions of $
Cash	400	$0.12/peso	$48
Acct. rec.	200	$0.12/peso	$24
Inventory	800	$0.08/peso	$64
Net plant and equipment	600	$0.10/peso	$60
Total Assets			$196

Liabilities & net worth
Acct pay.	500	$0.12/peso	$60
Long term debt	300	$0.10/peso	$30
Capital Stock	400	$0.08/peso	$32
Retained earnings	800		$74
Total Liabilities and net worth			$196

Exchange loss of $6 million adjusted in retained earnings

Value of exposed assets is $12 million($48+$24-$60) on Dec 31, 2013, under temporal method

Assets exposed to risk are those which are translated at current rate.
Current assets - current liabilities

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