QUESTION 3

Proterm Sdn Bhd is an assembly plant for automobiles based in Johor. Proterms products are exported in many parts of the world. You have been reading of recent developments with regard to the Covid-19 pandemic. Globally all firms are going through an economic crisis and this has resulted the firm to downsize its global operations. Currently, they have a subsidiary based in Thailand called Proterm Siam Limited.

It was incorporated on March 15, 2012 when the exchange rate was THB5.20/RM and the plant and equipment were also purchased then. Proterm Siam Limiteds December 31, 2020 balance sheet is shown below. At the date of this balance sheet the exchange rate between Thai Bhat (THB) and the Malaysian Ringgit (MYR) was THB7.18/RM, however it further depreciated to THB7.20/RM on January 1, 2021. There was no change in balance sheet accounts during these two days. The reporting currency of Proterm Siam Limited is the Malaysian Ringgit.

Proterm Siam Limited Balance Sheet as on 31 December 2020 THB000

28,000

48,000

120,000 21,000

217,000 217,000

Required: (a) Determine the impact of the currency rate change on January 1, 2021 on Proterm Siam

Limiteds translation exposure using both the current rate and temporal rate methods. (20 Marks)

(b) Explain TWO (2) proponents and TWO (2) opponents justifying the alignment of reserve composition of Protern Siam Limited to the regional preference of Proterm Sdn Bhd. (10 Marks) (Total: 30 Marks)