A foreign subsidiary\'s depreciation expense was reported in the parent\'s conso

Question

A foreign subsidiary's depreciation expense was reported in the parent's consolidated income statement as $6,000. The depreciable asset was bought when the direct exchange rate was 0.60:1. The purchase was made before the subsidiary was acquired by the parent. The exchange rate was 0.75:1 when the subsidiary was acquired. The average exchange rate this period was 0.85:1 and the ending exchange rate was 1.00:1. How much depreciation expense did the foreign subsidiary report in its own currency? The dollar is the functional currency.

Explanation / Answer

Since the closing exchange rate was 1.00 : 1, which is the rate to be used for reporting monetary amounts in foreign currency per the rules of IAS 21, hence the depreciation expense reported by the foreign subsidiary will be equivalent to $ 6,000 only.

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