Q2: Crimson Lights Inc. (CL) is a 100% wholly owned subsidiary with operations i
ID: 2553684 • Letter: Q
Question
Q2:
Crimson Lights Inc. (CL) is a 100% wholly owned subsidiary with operations in France. CL was purchased by a Canadian parent on January 1, 2012. The financial records of CL are maintained in euros and provide the following information with respect to equipment, and goodwill.
Equipment - purchased on January 1, 2012 for €250,000 - depreciated over 5 years on a straight-line basis.
Equipment - purchased on January 1, 2013 for €175,000 - depreciated over 5 years on a straight-line basis.
Goodwill - € 375,000
Foreign exchange rates were as follows:
January 1, 2012 €1 = 1.50
Average for 2012 €1 = 1.48
January 1, 2013 €1 = 1.46
Average for 2013 €1 = 1.45
January 1, 2014 €1 = 1.51
Average for 2014 €1 = 1.58
December 31, 2014 €1 = 1.62
Required:
Assume that CL's functional currency is the euro. Calculate the translated Canadian dollar balances for the following accounts at December 31, 2014.
a. Equipment
b. Accumulated depreciation — equipment
c. Depreciation expense
d. Goodwill
Explanation / Answer
Currency Translation -
Currency translation is the process of converting a foreign entity's functional currency financial statements to the reporting entity's financial statements.
Following exchange rate will be used for currency translation
1. Assets and Liabilities: Exchange rate between the functional currency and reporting currency at the end of the period
2. Income Statement: Exchange rate on the date that income or an expense was recognized; a weighted average rate during the period is acceptable
Translation From CL's functional currency 'EURO' to Canadian dollar
a. Equipment = Exchange rate will be taken as the end of period. December 31, 2014 €1 = 1.62
Equipment - purchased on January 1, 2012 for €250,000 x 1.62 = 405,000
Equipment - purchased on January 1, 2013 for €175,000 x 1.62 = 283,500
b. Accumulated depreciation — equipment = For accumulated depreciation average rate of the respective years will be taken
Equipment - purchased on January 1, 2012 for €250,000
Depreciation in EURO will be = €50,000
Equipment - purchased on January 1, 2013 for €175,000
Depreciation in EURO will be = €35,000
c. Depreciation expense = For current years depreciation Expences exchange will be taken as average rate of 2014 = €1 = 1.58
Depreciation Expence = 85,000 x 1.58 = 134,300
d. Goodwill = Exchange rate will be taken as the end of period. December 31, 2014 €1 = 1.62
Goodwill - € 375,000 x 1.62 = 607,500
Date Depreciation in EURO Exchange Rate Depreciation in Canadian Dollar 31-Dec-12 50,000 1.48 74,000 31-Dec-13 85,000 1.45 1,23,250 31-Dec-14 Accumulated Depreciation 1,97,250Related Questions
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