GKM Ltd. is the Singapore subsidiary of GKM USA, an American multinational chemi
ID: 2799383 • Letter: G
Question
GKM Ltd. is the Singapore subsidiary of GKM USA, an American multinational chemical company. GKM Ltd's reporting currency is the USD. GKM Ltd.'s December 31 balance sheet is shown below. At the date of this balance sheet, the exchange rate between the SGD and the USD was SGD 1.30/USD.
What is GKM Ltd.'s contribution to the translation exposure of GKM USA on December 31 using the current rate method?
Assets
Cash SGD 112,000
A/R SGD 82,800
Inventory SGD 144,700
Plant & equipment SGD 543,000
Total SGD 882,500
Liabilities & Shareholders’ equity
A/P SGD 78,000
ST bank debt SGD 23,000
LT debt SGD 81,500
Capital stock SGD 700,000
Total SGD 882,500
+USD 9,461.5Explanation / Answer
The current rate method for valuation of assets will be calculated on the basis of the net assets:
Net assets = Total assets - Total liabilities
= 882500-78000-23000-81500 = SGD 700,000
Now, to convert this to USD
= 700000/1.3 = USD 538,461
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