1. ) Calculate the cumulative translation adjustment (CTA) for this U.S. MNC tra
ID: 2551434 • Letter: 1
Question
1. ) Calculate the cumulative translation adjustment (CTA) for this U.S. MNC translating the balance sheet and income statement of a French subsidiary, which keeps its books in euro, but that is translated into U.S. dollars using the current rate method, the reporting currency of the U.S. MNC. The subsidiary is at the end of its first year of operation. The historical exchange rate is $1.60/€1.00 and the most recent exchange rate is $1.50/€
Balance Sheet Local Currency Cash € 2,100 Inventory (Current Value = 1800 Euro) € 1,500 Net Fixed assests € 3,000 Total Assest € 6,600 Current Liabilities € 1,200 Long-term debt € 1,800 Common stock € 2,700 Retained earnings € 900 CTA Total L&E € 6,600 Income Statement Sales Revenue € 10,000 COGS € 7,500 Depreciation € 1,000 NOI € 1,500 Tax (40%) € 600 Profit after tax € 900 Foreign Exchange gain (loss) Net Income € 900 Dividends € - Additional to Retained Earnings € 900Explanation / Answer
Balance Sheet Local Currency Current Rate Exchange rate Cash € 2,100 3150 1.5 Inventory (Current Value = 1800 Euro) € 1,500 2250 1.5 Net Fixed assests € 3,000 4500 1.5 Total Assest € 6,600 9900 1.5 Current Liabilities € 1,200 1800 1.5 Long-term debt € 1,800 2700 1.5 Common stock € 2,700 4320 1.6 Retained earnings € 900 1395 1.55 CTA -315 Total L&E € 6,600 9900 1.5 Income Statement Sales Revenue € 10,000 15500 1.55 COGS € 7,500 11625 1.55 Depreciation € 1,000 1550 1.55 NOI € 1,500 2325 1.55 Tax (40%) € 600 930 1.55 Profit after tax € 900 1395 1.55 Foreign Exchange gain (loss) Net Income € 900 1395 1.55 Dividends € - 0 Additional to Retained Earnings € 900 1395 1.55
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