Question

On January 2, 20X2, EL Limited established a subsidiary in Mexico City, Mexico. The subsidiary was named GC Company and the cost of EL’s investment was C$ 500,000. When this investment was translated into Mexican pesos, the cost of the investment was p5,000,000. On January 2, 20X2, GC obtained long-term debt of p1,000,000 from a bank in Mexico City when the exchange rate was p1.00 C$ 0.10. The long- term debt must be repaid at the end of four years. The opening SFP for GC on January 2, 20X2, is shown below:
GC Company
Statement of Financial Position
January 2, 20X2
Current monetary assets...................................................................................... p 6,000,000
Long-term debt................................................................................................... 1,000,000
Common shares................................................................................................... 5,000,000
............................................................................................................................ p 6,000,000
The December 31, 20X2, SFP and SCI for GC are shown below:
GC Company
Statement of Comprehensive Income
December 31, 20X2
Revenues............................................................................................................ p3,200,000
Amortization expense....................................................................................... 300,000
Operating expenses............................................................................................ 2,200,000
Total expenses................................................................................................... 2,500,000
Net income............................................................................................................ p 700,000
GC Company
Statement of Financial Position
December 31, 20X2
Current monetary assets......................................................................................... p2,800,000
Capital assets.......................................................................................................... 4,900,000
Accumulated amortization..................................................................................... (300,000)
................................................................................................................................ p 7,400,000
Current monetary liabilities..................................................................................... p 900,000
Long-term debt........................................................................................................ 1,000,000
Common shares...................................................................................................... 5,000,000
Retained earnings.................................................................................................. 500,000
............................................................................................................................... p7,400,000
The relevant exchange rates for the Mexican peso were as follows:
January 2, 20X2.............................................................................................. p1.00 = C$ 0.10
Average for 20X2........................................................................................... p1.00 = C$ 0.12
December 31, 20X2......................................................................................... p1.00 = C$ 0.14
During 20X2, GC purchased capital assets when the exchange rate was p1.00 C$ 0.11. Dividends were declared and paid when the exchange rate was p1.00 C$ 0.13. Revenues and other expenses were incurred evenly throughout the year.

Required
1. Calculate the exchange gains/ losses for the temporal and current- rate methods to be disclosed on the December 31, 20X2, SFP and SCI.
2. Translate the 20X2 SFP and SCI for GC assuming GC’s functional currency is the:
a) Mexican peso
b) Canadian dollar



$1.99
Sales0
Views31
Comments0
  • CreatedMarch 13, 2015
  • Files Included
Post your question
5000