The December 31, 2008, balance sheet of the Berlin Company, a wholly owned subsi

Question

The December 31, 2008, balance sheet of the Berlin Company, a wholly owned subsidiary of a U.S. company, showed its office building in central Berlin at Euro €1 due to accelerated depreciation which was allowed by the German income tax system and credited to the asset account. The building had been purchased for €500,000 in 2003, when $1 was worth €3.2. It has an estimated useful life of 40 years and no savage value. The company considers € as its functional currency. On December 31, 2008, $1 = €1.8. In the consolidated balance sheet at December 31, 2008, the Berlin building should be stated at a cost of how much?

Explanation / Answer

In consolidated financial statement, the assets and liabilities are to be stated at the closing rate.

The company can have different functional currency and presentation currency. it can represent its financial statement in many presentation currencies.

Office building on 31dec 2008 = Euro 1

In consolidated balance sheet, the cost of building = Euro 1/1.8 = $ 0.5556

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