Contents Issues 2 Facts 3 Analysis 4 Conclusions 9 Issues  1. How the company should treat the record of buying materials with different currencies?  2. How the company should treat the record of sales with different currencies?  3. What risk have this company associates with their direct sale in a foreign country with different currency?  4. Why might a company want its stock listed on a stock exchange outside of its home country?  5. Why might a company be interested in investing in an operation in a foreign country (foreign direct investment)?  Facts  Besserbrau AG is a German beer producer headquartered in Ergersheim, Bavaria. The company, which was founded in 1842 by brothers Hans and Franz Besser, is publicly traded, with shares listed on the Frankfurt Stock Exchange. Manufacturing in strict accordance with the almost 500-year-old German Beer Purity Law, Besserbrau uses only four ingredients in making its products: malt, hops, yeast, and water. While the other ingredients are obtained locally, Besserbrau imports hops from a company located in the Czech Republic. Czech hops are considered to be among the world’s finest. Historically, Besserbrau’s products were marketed exclusively in Germany. To take advantage of a potentially enormous market for its products and expand sales, Besserbrau began making sales in the People’s Republic of China three years ago. The company established a wholly owned subsidiary in China (BB Pijio) to handle the distribution of Besserbrau products in that country. In the most recent year, sales to BB Pijio accounted for 20 percent of Besserbrau’s sales, and BB Pijio’s sales to customers in China accounted for 10 per-cent of the Besserbrau Group’s total profit. In fact, sales of Besserbrau products in China have expanded so rapidly and the potential for continued sales growth is so great that the company recently broke ground on the construction of a brewery in Shanghai, China. To finance construction of the new facility, Besserbrau negotiated a listing of its shares on the London Stock Exchange to facilitate an initial public offering of new shares of stock.  Analysis   1- How the company should treat the record of buying materials with different currencies?  The company on this study case use materials from another country and this situation make the company keep certain accounting records that could help them describe this reality. The company should record the account payable of the hops in Euros if that is possible an the dilemma associated to the exchange in the foreign country currency will be out of the picture but since maybe this could not be the case the company should record the account payable for the value of the invoice at the present currency exchange rates and by the time of the contract payment adjust the journal entry adding the loss or gain in foreign currency exchange. An important rule of accounting is that your balance sheet and income statement must be reported in your home curre.

1. Contents
Issues 2
Facts 3
Analysis 4
Conclusions 9
Issues
1. How the company should treat the record of buying materials
with different currencies?
2. How the company should treat the record of sales with
different currencies?
3. What risk have this company associates with their direct sale
in a foreign country with different currency?
4. Why might a company want its stock listed on a stock
exchange outside of its home country?
5. Why might a company be interested in investing in an
operation in a foreign country (foreign direct investment)?
Facts
Besserbrau AG is a German beer producer headquartered in
Ergersheim, Bavaria. The company, which was founded in 1842
by brothers Hans and Franz Besser, is publicly traded, with
shares listed on the Frankfurt Stock Exchange. Manufacturing in
strict accordance with the almost 500-year-old German Beer
Purity Law, Besserbrau uses only four ingredients in making its
products: malt, hops, yeast, and water. While the other

2. ingredients are obtained locally, Besserbrau imports hops from
a company located in the Czech Republic. Czech hops are
considered to be among the world’s finest. Historically,
Besserbrau’s products were marketed exclusively in Germany.
To take advantage of a potentially enormous market for its
products and expand sales, Besserbrau began making sales in
the People’s Republic of China three years ago. The company
established a wholly owned subsidiary in China (BB Pijio) to
handle the distribution of Besserbrau products in that country.
In the most recent year, sales to BB Pijio accounted for 20
percent of Besserbrau’s sales, and BB Pijio’s sales to customers
in China accounted for 10 per-cent of the Besserbrau Group’s
total profit. In fact, sales of Besserbrau products in China have
expanded so rapidly and the potential for continued sales
growth is so great that the company recently broke ground on
the construction of a brewery in Shanghai, China. To finance
construction of the new facility, Besserbrau negotiated a listing
of its shares on the London Stock Exchange to facilitate an
initial public offering of new shares of stock.
Analysis
1- How the company should treat the record of buying materials
with different currencies?
The company on this study case use materials from another
country and this situation make the company keep certain
accounting records that could help them describe this reality.
The company should record the account payable of the hops in
Euros if that is possible an the dilemma associated to the
exchange in the foreign country currency will be out of the
picture but since maybe this could not be the case the company
should record the account payable for the value of the invoice at
the present currency exchange rates and by the time of the
contract payment adjust the journal entry adding the loss or gain
in foreign currency exchange.
An important rule of accounting is that your balance sheet and
income statement must be reported in your home currency. So,

3. you will record all the foreign-currency expenses incurred by
your business as well as invoices created in Euros using the
exchange rate that is current on the date when you log the
transaction.
2- How the company should treat the record of sales with
different currencies?
Companies can use a variety of techniques to manage, or hedge,
their exposure to foreign exchange risk. A popular way to hedge
foreign exchange risk is through the purchase of a foreign
currency option that gives the option owner the right, but not
the obligation, to sell foreign currency at a predetermined
exchange rate known as the strike price. But could also be
treated as we explain in the prior question recording the account
receivable of the sale amount per the rate at the date of the
transaction and after receiving the payment adjusting the
journal with the gain or loss in the foreign exchange
transactions.
3. What risk have this company associates with their direct sale
in a foreign country?
Every country presents its own opportunities. But before
expanding your company overseas, however, be aware of the
additional risks of the foreign trade market. In general, the risks
of conducting international business can be segmented into four
main categories: country, political, regulatory and currency
risk.
Higher Transaction Costs
Likely the biggest barrier to selling in international markets are
the transaction costs. Although we live in a relatively
globalized and connected world, transactions costs can still vary
greatly depending on which foreign market you are selling in.
In addition, there are frequently additional charges that are

4. piled on top of exchange rates that are specific to the local
market, which can include stamp duties, levies, taxes and
clearing fees.
Country Risk
Weigh the benefits of your company doing business abroad
against the potential pitfalls. Poor infrastructure such as roads,
bridges and telecommunications networks can make it expensive
to operate a business in another country. Economic conditions
such as high unemployment or a largely unskilled labor force
can be barriers to entry. Rogue nations may have untapped
potential, but may also pose risks such as terrorism, internal
conflict and civil unrest. Anti-foreign sentiment among citizens,
workers and government officials may also make doing business
abroad especially challenging. Other country risks include
crime and corruption.
Political Risk
Determine the political climate of the country you hope to enter.
An unstable or ineffective government will be unable to protect
your business interests. Lack of a strong foreign trade policy
means that your business will have to navigate through the
nuances of allying with government officials who may fall from
power. An incoming government may not be business-friendly
and may decide to increase tariffs or impose quotas.
Regulatory Risk
A sudden change in trade laws or a poor legal system exposes
your business to regulatory risk. For example, a country without
clearly defined intellectual property laws make it difficult for
foreign software companies to protect their investments.
Changes in banking laws may limit your company's ability to
repatriate money to your home country or may limit access to
funding.
Currency Risk
Fluctuations of a foreign country's currency can diminish profits
when converting back to the home currency. Analyze the risk
and rewards of making an investment in another country. The
currencies of stable governments are less volatile than those of

5. less-developed countries. Hedging strategies could mitigate
some of the currency risk; however, your business is still at the
mercy of the vagaries of the local currency market. Sudden
changes in monetary policy will also affect currency rates.
4. Why might a company want its stock listed on a stock
exchange outside of its home country?
Companies list on the stock exchange to raise capital. There are
two methods that companies can raise capital - equity and debt.
When a company take the decision of listing in a foreign stock
exchange could be to gain access to more financial resources
than are available in its home country
When a company lists on the stock exchange, they are raising
equity by making shares open for the public to buy.
Raising capital through equity is less risky because investors
aren’t entitled to receiving a specific return for their
investment. For this reason, companies seek to find a favorable
balance between debt and equity funding in order to manage a
firm’s risk.
As a publicly traded company in two different stock exchange
this company is required to prepare consolidated financial
statements in which the assets, liabilities, and income of its
subsidiaries (domestic and foreign) are combined with those of
the parent company. The consolidated financial statements must
be presented in the regulatory currencies of those stock
exchanges and prepared using the required accounting standards
of those countries.
5. Why might a company be interested in investing in an
operation in a foreign country (foreign direct investment)?
Increase Sales and Profits
International sales may be a source of higher profit margins or
of additional profit through additional sales. Unique products or

6. technological advantages may provide a comparative advantage
that a company wishes to exploit by expanding sales in foreign
countries.
Enter Rapidly Growing or Emerging Markets
Some international markets are growing much faster than
others. Foreign direct investment is a means for gaining a
foothold in a rapidly growing or emerging market. The ultimate
objective is to increase sales and profits.
Reduce Costs
A company sometimes can reduce the cost of providing goods
and services to its customers through foreign direct investment.
Significantly lower labor costs in some countries provide an
opportunity to reduce the cost of production. If materials are in
short supply or must be moved a long distance, it might be less
expensive to locate production close to the source of supply
rather than to import the materials. Transportation costs
associated with making export sales to foreign customers can be
reduced by locating production close to the customer.
Gain a Foothold in Economic Blocs
To be able to sell its products within a region without being
burdened by import taxes or other restrictions, a company might
establish a foothold in a country situated in a major economic
bloc. The three major economic blocs are the North American
Free Trade Association (NAFTA), the European Union, and an
Asian bloc that includes countries such as China, India,
Indonesia, Malaysia, the Philippines, South Korea, Taiwan, and
Thailand.
Protect Domestic Markets
To weaken a potential international competitor and protect its
domestic market, a company might enter the competitor’s home
market. The rationale is that a potential competitor is less likely
to enter a foreign market if it is preoccupied with protecting its
own domestic market. Protect Foreign Markets Additional
investment in a foreign country is sometimes motivated by a
need to protect that market from local competitors. Companies
generating sales through exports to a particular country

7. sometimes find it necessary to establish a stronger presence in
that country over time to protect their market.
Acquire Technological and Managerial Know-How
In addition to conducting research and development at home,
another way to acquire technological and managerial know-how
is to set up an operation close to leading competitors. Through
geographical proximity, companies find it easier to more closely
monitor and learn from industry leaders and even hire
experienced employees from the competition.
Conclusions
There are several issues the Besserbrau AG will face. With the
expansion into China, Besserbrau AG will need to account for
Foreign Direct Investment (FDI). They can do this by adapting
their accounting standards to meet the requirements in China.
The profits made by BB Pijio will need to be converted from
Chinese GAAP to German GAAP. These profits will also need
to be translated between the two currencies and the overall
performance of BB Pijio.
Besserbrau AG would face an issue with the sales to foreign
customers. Since both of the countries have different currency,
in order to account for their export sales, they will need to
convert the Chinese Yuan into the German Euros for both the
sale and the receivable.
Besserbrau AG would also face an issue with foreign exchange
risk. To reduce their risk to foreign exchange risk, Besserbrau
AG could set the requirement that all foreign customers pay for
products in Euros.
Cross listing on foreign stock exchanges is another issue
Besserbrau AG would face. Since Besserbrau AG negotiated a
listing on the London Stock Exchange to help finance their new
facility, they must stay in compliance with the regulations
pertaining to the London Stock Exchange. In order to stay in
compliance, they will need to fully understand the financial

8. reporting requirements.
In order to minimize taxation Besserbrau AG could use
discretionary transfer pricing. This would give them the ability
to shift their profits between China and Germany. By doing this,
they need to follow the laws for regulating international transfer
pricing for each country.
It is obvious that Besserbrau AG has a number of issues they
will face with their expansion into China. I believe the issues
listed above are the major issues they will have to face and
conquer in order to be successful in this endeavor.
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