XMX India is the Indian subsidiary of ABC, a British multinational. ABC's reporting currency is the British
Question:
XMX India is the Indian subsidiary of ABC, a British multinational. ABC's reporting currency is the British pound. XMX India's balance sheet on 31 December 2020 is shown in the table below. The exchange rate between the Indian rupee and the British pound was 102.50 rupees per pound on 31 December 2020 and 112.75 rupees per pound on 31 March 2021. Assume that the rupee values of all entries in XMX India's balance sheet did not change between 31 December 2020 and 31 March 2021.
Assets | Value in Rupees | |
Cash | 307,500,000 | |
Accounts receivable | 615,000,000 | |
Inventory | 922,500,000 | |
Net plant and equipment | 1,230,000,000 | |
Total | 3,075,000,000 | |
Liabilities and Net Worth | ||
Accounts payable | 256,250,000 | |
Short-term debt | 666,250,000 | |
Long-term debt | 563,750,000 | |
Invested capital | 1,588,750,000 | |
Total | 3,075,000,000 |
(i) If ABC uses the current rate method for compiling its consolidated balance sheet, did it make a gain or incur a loss from its translation exposure to XMX India between 31 December 2020 and 31 March 2021? Compute the pound value of ABC's translation gain or loss.
(ii) If ABC uses the temporal method for compiling its consolidated balance sheet, did it make a gain or incur a loss from its translation exposure to XMX India between 31 December 2020 and 31 March 2021? Compute the pound value of ABC's translation gain or loss.
Advanced Accounting
ISBN: 978-0077431808
10th edition
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik