(20 points) The balance sheet for an Egyptian subsidiary of a British company appears below. The...

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(20 points) 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 £E5.50/UK£. The relevant exchange rates for inventory and PPE (when necessary) were 5EGP/GBP and 4EGP/GBP, respectively. For the current rate method only, the appropriate exchange rate for capital (retained earnings and stock) was the weighted average figure of 4.8EGP/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 £E6.4/£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. Cash AR Assets (£E) Inventory Net PPE Liabilities and Equity (£E) 24,750,000 49,500,000 90,750,000 16,500,000 AP 33,000,000 L-t debt 49,500,000 Capital 66,000,000 £E165,000,000 £E165,000,000 (20 points) 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 £E5.50/UK£. The relevant exchange rates for inventory and PPE (when necessary) were 5EGP/GBP and 4EGP/GBP, respectively. For the current rate method only, the appropriate exchange rate for capital (retained earnings and stock) was the weighted average figure of 4.8EGP/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 £E6.4/£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. Cash AR Assets (£E) Inventory Net PPE Liabilities and Equity (£E) 24,750,000 49,500,000 90,750,000 16,500,000 AP 33,000,000 L-t debt 49,500,000 Capital 66,000,000 £E165,000,000 £E165,000,000

Answer rating: 100% (QA)

The detailed answer for the above question is provided below A Current Rate Method Assets E Cash 165... View the full answer