Question

The Swiss subsidiary of Joe's Garage has the following balance sheet in Swiss francs: Giuseppe's Garage, Balance Sheet on Day of Devaluation (in millions SFR ash 50 150 400 1,000 Inventory Plant & Equipment Total 1,600 s Payable 200 100 700 450 150 SIT Bank Loan Debt Common Stock Retained Earnings Translation Adjustment Total 1,600 Beginning Rate (SFRIS): Current Rate (SFR/S) Historical Rate (SFR 1.28 1.6 (before devaluation) (after devaluation) The last time the Swiss balance sheet was translated, the exchange rate was SFR1.28 Today the franc was devalued by 20% so that current exchange rate is SFR 1.60S. a. If Giuseppe's functional currency is the Swiss franc, show the translated dollar value for both pre- and post devaluation scenarios. What is the translation gain (loss) due to the devaluation? (Note, for translated amounts before the devaluation, use a "plug" figure for Retained Earnings and assume that there weren't any previous translation losses). b. If Giuseppe's functional currency is the US dollar, show the translated dollar value for both pre- and post devaluation scenarios. What is the translation gain (loss) due to the devaluation? (Note, for translated amounts before the devaluation, use a "plug" figure for Retained Earnings.)

Answer 1

Particulars	Befor Devaluation	CR	Rate	After Devaluation
Cash	50	1.28	1.6	62.5
AR	150	1.28	1.6	187.5
Inventory	400	1.28	1.6	500
Plant & Equipment	1000	1.8	1.8	1000
Transactional Adjustment ( Bal fig.)				250
				2000
Accounts Payable	200	1.28	1.6	250
S/T Bank Loan	100	1.28	1.6	125
L/T Debt	700	1.28	1.6	875
Common Stock	450	1.28	1.6	562.5
Retained Earnings	150	1.28	1.6	187.5
				2000
Note: Plant & Equipment would be in His torical cost so changes not happen