Calculate Gain or Loss in Value of Inventory in Dollars and Euros
What is the gain or loss in value of the inventory expressed in dollars and in euros?
Last year Leather Boot, Inc. had investments in Paris worth 440,000 euros. At that time, the euro was worth $1.12. Today the euro is trading for $1.32. Use a minus sign to enter the amount as a negative value. Round your answers to the nearest whole number. If your answer is zero, enter "0".
Answer:
Last year, the value of the inventory in dollars was: = 440,000 * 1.12 = $492,800 This year with the new exchange rate, this value has gone to: = 440,000 * 1.32 = $580,800 The Gain (loss) in dollars is: = Current value - Last year value = $580,800 - $492,800 = $88,000 The value of the Euro both last year and this year is still €440,000 so the change is gain is €0.
When dealing with investments or inventory in foreign currencies, it's important to consider exchange rate fluctuations to accurately calculate gains or losses. In this scenario, Leather Boot, Inc. had investments worth 440,000 euros last year in Paris when the euro was valued at $1.12. This translated to a value of $492,800 in dollars.
Fast forward to today, the euro is trading for $1.32, resulting in the inventory now being valued at $580,800. By subtracting the initial value from the current value, we find a gain of $88,000 in dollars.
However, as the value of the euro remained the same at €440,000 both last year and this year, there is no gain or loss in euros, meaning it stays at €0.
It's crucial for businesses to monitor exchange rates to assess the impact on investments and inventory values, as fluctuations can lead to significant gains or losses in different currencies.