On January 1, the wholly-owned Mexican affiliate of a Canadian parent company acquired an inventory of computer hard drives for its assembly operation. The cost incurred was 15,000,000 pesos when the exchange rate was MXN11.3 = C$1. By yearend, the Mexican affiliate had used three-fourths of the acquired hard drives. Due to advances in hardware technology, the remaining inventory was marked down to its net realizable value of MXN1,750,000. The year-end exchange rate was MXN12.3 = C$1. The average rate during the year was MXN11.8 = C$1.
a. Translate the ending inventory to Canadian dollars assuming the Mexican affiliate’s functional currency is the Mexican peso.
b. Would your answer change if the functional currency were the Canadian dollar? Please explain.