CTA Question that pissed me off!

Local currency: Cash and receivables 120m inventory 360m equipment 1092m liabilities 600m capital stock 350m retained earnings 622m LC/$US 2004 2005 2006 2007 average 0.9 1.05 1.05 1.25 year-end 1 1.1 1 1.5 Q: compute the comulative translation adjustment reported on continental supply’s consolidateed balance sheet at the end of 2007 assuming international oilfiled is a relatively self-contained and independent operation of continental supply a. $200m debit b. $200m credit c. $227m debit d. $227m credit show your work plz tips:use temp method

maybe i’ve screwed this up already. but don’t you need a starting balance and to calculate it for 3-4 years to get the balance sheet figure… and since when does CFA talk in terms of credits and debits??

re: the temporal tip… doesn’t it just flow thru income, and no CTS on B/S… i could easily be completely wrong on both of my comments.

And why would you use temporal method if its for CTA account and the company is self-contained??? This question is all messed up

and like westbruin said, you would need all of the data from previous years to caclulate the cumulative CTA account balance

the tip should be all-current. LC = FC ----> all-current method

^^ agree. Self-contained should be where LC = FC so all current, why temp on this one? Also, what are the dates for the B/S given? The question probably pissed you off because it sucks.

It appears that they want you to figure out the CTA that has built up by the end of 2007. So you would have to figure out each year. But I am with you guys. CTA on BS if using temporal method would be zero.

Yeah, wouldn’t there only be a CTA if translated using all current method? With temporal the answer shoud be zeor. Right?

LanceTX Wrote: ------------------------------------------------------- > and like westbruin said, you would need all of > the data from previous years to caclulate the > cumulative CTA account balance I don’t think so. I think they are asking what the total amount on the BS would be. Not just that years CTA.

Haha this question is funny, but theres lots of stuff to review in figuring out why its a horrible question. Also you need to know at least last years information because you need change in exposure*(ending-avg) and beg exposure*(end rate- beg rate)

A, L and E would be changing each year so I don’t know how to do this problem.

i think it’s all-current too (hence my comment about needing a starting CTS balance and then the changes in the exposures each year (or the year-end figures each year). i am wondering if it’s trick where you can just back it out of the balance sheet figures themselves. and i did that work. and i vote for ZERO, which isn’t one of the choices (but i don’t feel confident about that analysis)

Maybe it is C and D and they offset each other to get zero.

I get a decrease of $200m, not sure if that is debit or credit, but A or B Beg exposure = 350 End exposure = 972 change = 622 flow = 622 * (.667 - .8) = -82.9 holding = 350 * (.667 - 1) = -116.6 Total CTA = -200

yeah, this is a good “spot the differences” question… must be about 5 problems with this question. and i thought it was all-current too… my temporal comment (where CTS is zero) was only in response to the hint.

How are you getting beg exposure?

Oh I guess I assumed that was the first year. Its all I could think of with the information presented.

^^ Right, but supposedly there is 4 years of information.

Can you deduce from the exchange rates whether it has to be more than 200? Since 227 is the only other answer given maybe you don’t need to know the beg exposure.