Chapter 21 on multinational operations is frustrating me a little bit. I just can’t seem to distill all the information into a logical sequence. I’ve read the chapter twice and it still doesn’t make much sense. At the moment, I don’t have any particular questions. I memorized what rates to use for the accounts but I trip up with the currency appreciate/depreciate and what happens with the ratios.
@diya I do memorise the stuff in this topic however sometimes you might forget in the exam so following is the method i used to memorise the appreciation/depreciation of the foreign currency (of your subsidiary)
GBPUSD 1.5 (1gbp = 1.5usd)
A subsidiary in US owned by a UK company, has an asset of $150k (which means £100k)
Now, depreciating your foreign currency GBPUSD 2.0 (1gbp = 2usd)
your existing asset in the US subsidiary $150k is now only £75k.
Hence, depreciation FOREIGN currency = LOSS in ASSET
the opposite of that is GAIN in LIABILITY (theory behind it? since depreciated foreign currency resulting in a loss in the subsidiary’s asset value, likewise the liability will be smaller too. Remember liability is negative hence smaller negative = gain!)
And obviously the opposite of depreciation (appreciation):
GAIN in Asset
LOSS in Liability
hope that helps.
- You must be logged in to reply to this topic.