Reference no: EM132620271
Bangkok Instruments, Ltd., the Thai subsidiary of a U.S. corporation, is a seismic instrument manufacturer. Bangkok Instruments manufactures instruments primarily for the oil and gas industry globally, though with recent commodity price increases of all kinds-including copper-its business has begun to grow rapidly. Sales are primarily to multinational companies based in the United States and Europe. Bangkok Instruments' balance sheet in thousands of Thai baht (B) as of March 31 is as follows:
Bangkok Instruments, Ltd.
Balance sheet, March 1, thousands of Thai bahts
Assets Liabilities and Net Worth
Cash B24,000 Accounts payable B18,000
Accounts receivable 36,000 Bank loans 60,000
Inventory 48,000 Common stock 18,000
Net plant & equipment 60,000 Retained earnings 72,000
B168,000 B168,000
Exchange rates for translating Bangkok Instruments' balance sheet into U.S. dollars are:
B40.00/$ April 1st exchange rate after 25% devaluation.
B30.00/$ March 31st exchange rate, before 25% devaluation. All inventory was acquired at this rate.
B20.00/$ Historic exchange rate at which plant and equipment were acquired.
The Thai baht dropped in value from B30/$ to B40/$ between March 31 and April 1. Assuming no change in balance sheet accounts between these two days:
(a) Calculate the gain or loss from translation by both the current rate method and the temporal method.
(b) Explain the translation gain or loss in terms of changes in the value of exposed accounts.