which dollar figure do you think provides the more useful information 543822 | Homework Solutions
Ninsuvaan Corporation, a U.S. subsidiary in Bangkok, Thailand, begins and ends its calendar year with an inventory balance of BHT500 million. The dollar/baht exchange rate on January 1 was $0.02 = BHT1. During the year, the U.S. general price level advances from 180 to 198, while the Thai general price level doubles. The exchange rate on December 31 was $0.015 = BHT1.
Required:
a. Using the temporal method of translation, calculate the dollar equivalent of the inventory balance by first restating for Thai inflation, then translating to U.S. dollars.
b. Repeat part (a), but translate the nominal baht balances to dollars before restating for U.S. inflation.
c. Which dollar figure do you think provides the more useful information?
d. If you are dissatisfied with either result, suggest a method that would provide more useful information than those in parts (a) and (b).
|
Balance Sheet Year Ended 2011 |
|||
|
Cash |
EUR2,000 |
Short-term debt |
EUR8,000 |
|
Inventory |
8,000 |
Long-term debt |
25,000 |
|
Plant & equipment, net |
20,000 |
||
|
Other assets |
5,000 |
Owners equity |
2,000 |
|
Total |
EUR35,000 |
EUR35,000 |
|
Exchange rate and price information:
January 1: General price index = 300
EUR1.5 = £1
December 31: General price index = 390
EUR1.95 = £1
