Summary of Projected Operations for Spectrum Manufacturing ab: Base Case
Spectrum’s Accounting Exposure
Exhibit 11.8 shows Spectrum’s balance sheet before and after an exchange rate change. To contrast the economic and accounting approaches to measuring exposure, assume that the Swedish krona devalues by 20%, from SKr 4 = $1 to SKr 5 = $1. The third column of Exhibit 11.8 shows that under the current rate method mandated by FASB-52, Spectrum will have a translation loss of $685,000. Use of the monetary/nonmonetary method leads to a much smaller reported loss of $50,000.