Current rate method all balance sheet Balance Sheet Local Current items(except for Currency Rate stockholder 's Cash DM2.100 $1050 equity are Inventory DM1.500 $750 translated at the current exchange Net fixed assets DM3000$1500 Total assets DM6600 $3,300 rate Current liabilities DM1.200 $600 a plug equity DM1.800 $900 account named Long-Term debt Common stock DM2700 cumulative $900 translation Retained earnings DM900 $360 adjustment is used CTA $540 to make the balance Total liabilities DM6.600 $3,300 sheet balance and Equity McGraw-Hilylrwoin 14-10 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-10 Current Rate Method ⚫ All balance sheet items (except for stockholder’s equity) are translated at the current exchange rate. ⚫ A “plug” equity account named cumulative translation adjustment is used to make the balance sheet balance Balance Sheet Local Currency Current Rate Cash DM2,100 $1,050 Inventory DM1,500 $750 Net fixed assets DM3,000 $1,500 Total Assets DM6,600 $3,300 Current liabilities DM1,200 $600 Long-Term debt DM1,800 $900 Common stock DM2,700 $900 Retained earnings DM900 $360 CTA -------- $540 Total Liabilities and Equity DM6,600 $3,300
How Various translation methods deal with a Change from DM3 to DM2=$1 Balance sheet Local Current/ Monetary/ Temporal Current Currency Noncurrent Nonmonetary Rate 2,100DM 1.050 1050 105 s1050 Ir henton 1.500DM Net fixed assets 3.000DM $l000 100 Total assets 6.600DM $2800 $2,95083,300 Current 1200DM $600 s600 $600 $600 liabilities L t -lel 1,800DM $600 $900 $900 Common stock 2.700DM $900 s900 $9o $900 Retained 900DM $700 150 $50 $360 earnings CTA $540 Total 6.600 DM $2800 $2550 2,950$3,300 Liabilities and equity Spot exchange rate McGraw-Hilylrwoin 14-11 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-11 How Various Translation Methods Deal with a Change from DM3 to DM2 = $1 Balance Sheet Local Currency Current/ Noncurrent Monetary/ Nonmonetary Temporal Current Rate Cash 2,100 DM $1,050 $1,050 $1,050 $1,050 Inventory 1,500 DM $750 $500 $900 $750 Net fixed assets 3,000 DM $1,000 $1,000 $1,000 $1,500 Total Assets 6,600 DM $2,800 $2,550 $2,950 $3,300 Current liabilities 1,200 DM $600 $600 $600 $600 Long-Term debt 1,800 DM $600 $900 $900 $900 Common stock 2,700 DM $900 $900 $900 $900 Retained earnings 900 DM $700 $150 $550 $360 CTA -------- -------- -------- -------- $540 Total Liabilities and Equity 6,600 DM $2,800 $2,550 $2,950 $3,300 Spot exchange rate earnings
How Various translation methods deal with a Change from DM3 to DM2=$1 Balance sheet Local Current/ Monetary/ Temporal Current Currency Noncurrent Nonmonetary Rate 2,100DM$050 $10501050 1050 Ir henton 1.500DM $750 $500 900)($750 Net fixed assets 3.000DM S000 900000$500 Total assets 6.600DM 800 $2,550$2956$3,300 Current 1200DM $600 Book $600 s600 $600 liabilities alue of Long-Term 1,800DM S600 ventory $go $900 $900 ate Common stock 2.700DM $900 $900 $900 $900 Retained earnings 900 DM $700 $150 $550 $360 CTA $540 Total 6.600 DM $2800 $250$2,950$3,300 Liabilities and Book value of inventory Current value of inventory Equity at spot exchange rate at spot exchange rate McGraw-Hilylrwoin 14-12 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 14-12 How Various Translation Methods Deal with a Change from DM3 to DM2 = $1 Balance Sheet Local Currency Current/ Noncurrent Monetary/ Nonmonetary Temporal Current Rate Cash 2,100 DM $1,050 $1,050 $1,050 $1,050 Inventory 1,500 DM $750 $500 $900 $750 Net fixed assets 3,000 DM $1,000 $1,000 $1,000 $1,500 Total Assets 6,600 DM $2,800 $2,550 $2,950 $3,300 Current liabilities 1,200 DM $600 $600 $600 $600 Long-Term debt 1,800 DM $600 $900 $900 $900 Common stock 2,700 DM $900 $900 $900 $900 Retained earnings 900 DM $700 $150 $550 $360 CTA -------- -------- -------- -------- $540 Total Liabilities and Equity 6,600 DM $2,800 $2,550 $2,950 $3,300 Book value of inventory at spot exchange rate Book value of inventory historic rate Current value of inventory at spot exchange rate. earnings