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.
Evaluate the inventory value using both the temporal and existing methods. Show how this may be reflected on Royal Tea's statements and the consolidated statements of U.S. Beverages. Use the subsequent 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.