The Swiss subsidiary of Joe\'s Garage has the following balance sheet in Swiss f

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.)

Explanation / Answer

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

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