Problem:
Royal Tea, a wholly-owned English subsidiary of U.S. Beverages (a U.S. firm) maintains its inventory at cost, and Royal Tea's books are reflected in British pound sterling. U.S. Beverages' functional currency is U.S. dollars.
Determine the inventory value using both the temporal and current methods. Show how this will be reflected on Royal Tea's statements and the consolidated statements of U.S. Beverages. Use the following information for this calculation:
- The historical cost of inventory is £750,000.
- The historical exchange rate is $0.650.
- The current exchange rate is $0.689.