Value-5% of final s meser g Instructions: Read the case and answer the following
ID: 2577605 • Letter: V
Question
Value-5% of final s meser g Instructions: Read the case and answer the following questions. Do not repeat the questions. Show your answers and supporting computations. Your submission must be typed and handed in at the class that day (or emailed to me before class if you are not attending class) Late submissions are not acceptable. Facts of the case: ABC Corporation has had operations in Country X for 10 years. Assume that through the end of 2016 Country X has always been considered to be a highly inflationaryeconomy and ABC has used the US dollar as its functional currency. However, beginning January 1, 2017 Country X no longer meets the definition of a highly inflationary economy and ABC afteranalyzingthefactors,hasdetermine that it- will use the local currency as the functional currency empa F0o On January 1, 2010 ABC acquired a building in Brazil for local currency 20,000,000. Assume 20 year useful life using straight line depreciation and no salvage value. The following direct exchange rates were in effect January 1, 2010 spot rate: January 1, 2017 spot rate: IFC= .60 US dcrusten. December 31, 2017 spot rate: 1 FC 50 US verage spot rate 2017: i FC ,55 US Answer the following questions: . Find the FASB Codification Section that deals with this question specifically what happens when a country which was previously considered as highly inflationary, no longer meets that criteria. "Cut and paste" the section by ###-##-## and briefly summarize in your own words what this says. (3 points) 8 8.8 0 t is the amount in US dollars of depreciation expense that will be reported by ABC for 2017. Show a computation. (1 point) 2. Wha fgoo,coo xo.ho Svo, eco auuuel dep.net2euqs4lar1 3 What is the amount in US dollars of Building (net of accumulat iation) that will be reported by ABC on December 31, 2017. OFX%20Project--Fall%202017.doc hosted.cExplanation / Answer
Answer as follows :
1. The Financial Accounting Standards Board's Statement No. 52 on foreign currency translation introduces the concept of the "functional currency" to determine the recognition of foreign currency translation gains, losses and adjustments. According to the criteria set forth in the statement, the functional currency in the case of a foreign subsidiary that is an independent, cash-generating center will be the local currency; in most other cases, the functional currency will be the dollar. If the functional currency is the dollar, the translation process under Statement No. 52 is essentially the same as under the old Statement No. 8: The "temporal" method is used, and gains or losses resulting from translation are included in income for the period. If the functional currency is the local currency, then the "all-current" method is applied: All assets and liabilities are translated at the current rate; translation gains and losses are not recognized in the income statement, but are included in owners' equity as "translation adjustments"; and income statement items are translated at the rate that prevailed when the revenue or expense was recognized (in general, the weighted average exchange rate for the year). When the local currency is the functional currency, adoption of Statement No. 52 will lead to smaller fluctuations in operating income and much smaller fluctuations in net income in response to changes in exchange rate. This result should please many critics of Statement No. 8. On the other hand, Statement No. 52 raises its own problems. In particular, the translation at current exchange rates of local-currency-denominated historical cost items may be considered to result in a figure that is neither a meaningful description of past cash flows nor a description of future flows. The statement further confounds interpretation of the effects of translation by requiring that these meaningless balances be consolidated with the parent company's accounts.
2.
Computation of Depreciation for 2017 reported in US Dollar:
Cost =FC 20,000,000
Useful Life of Asset = 20 Years
Salvage Value = 0
Depreciation for the year = ( Cost of Asset – Salvage Value)/Useful Life of Asset
Depreciation for the year =(20,000,000-0)/20
Depreciation for the year = FC 1,000,000
Depreciation for the year 2017 (US $) = FC 1,000,000*.55 = US $ 5,50,000
Here 0.55 Average Spot Price for the Year 2017.
3. Computation of value of Building (net of accumulated Depreciation) as on 31 dec. 2017 reported in US Dollar:
Cost =FC 20,000,000
Useful Life of Asset = 20 Year
Asset Utilized = 7 Years
Salvage Value = 0
Accumulated Depreciation = ( Cost of Asset – Salvage Value)/Useful Life of Asset* Asset Utilized
Accumulated Depreciation =(20,000,000-0)/20*7
Accumulated Depreciation = FC 7,000,000
Net of accumulated depreciation value of the Building = FC 20,000,000 – FC 7,000,000
Net of accumulated depreciation value of the Building = FC 13,000,000
Value of Building as on 31 dec. 2017 (US $) = FC 13,000,000*.50 = US$ 6,500,000
Here 0.50 December 31 2017 Spot Price.
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