Question #70 - Reading 10 Multinational Operations

Reading: Reading 10 Multinational Operations

PDF File: Reading 10 Multinational Operations.pdf

Page: 40

Status: Unattempted

Correct Answer: B

Shared Context

- On APJ's 2012 balance sheet, the level of accounts receivable is U.S. dollars would be closest to: A) $110. B) $132. C) $330.

Question

For APJ, the conversion to US$ is most likely to result in:

Answer Choices:

A. remeasurement gain

B. cumulative translation adjustment loss

C. cumulative translation adjustment gain

Explanation

APJ shows a net asset: Total assets A$1,530 / (3.00 A$/US$) = US$510 Total liabilities A$210 / (3.00 A$/US$) = US$70 Net asset = US$440 Because the functional currency is the local currency, the current rate method is used. When we have a net asset balance sheet exposure, a weakening foreign currency will result in a negative translation adjustment. AJP's net asset position will result in a cumulative transaction adjustment loss as the foreign currency, the A$, is depreciating. Exposure Foreign Currency Current rate method: Appreciating Depreciating Net assets Gain Loss Net liabilities Loss Gain

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