Exercises

1. Rose Co has fixed assets information as below:

Jan 1, Year 1. Purchase £2,000 PPE with rate of $1 per £
Jan 1, Year 2. Purchase £2,400 PPE with rate of $1,2 per £
Both equipment have a five year useful life.
Average exchange rate for year 2 is $1.1 per £
At Dec 31, Year 2, Exchange rate is $1.3 per £
Required:
A, Determine assets value (asset costs) on Dec 31, year 2 in parent currency ($)
B, Determine accumulated depreciation on Dec 31, year 2 in $
Answer:
- Current rate method
Equipment 1 £ Translation rate $
Cost 2,000 1.3 2,600
Acc.depn 800 1.3 1,040
Carrying amount 1,600 1.3 2,080
Depn expense 400 1.1 440

Equipment 2 £ Translation rate $

Cost 2,400 1.3 3,120
Acc.depn 480 1.3 624
Carrying amount 1,920 1.3 2,496
Depn expense 480 1.1 528

=> Assets value on Dec 31, year 2 under current rate method:
2,080+2,496=4,576
=> Acc depreciation on Dec 31, year 2 under current rate method:
1,040+624=1,664
- Temporal method
Equipment 1 £ Translation rate $
Cost 2,000 1 2,000
Acc.depn 800 1 800
 Carrying amount 1,600 1 1,600
Depn expense 400 1 400
Equipment 1 £ Translation rate $
Cost 2,000 1.2 2,400
Acc.depn 800 1.2 960
Carrying amount 1,600 1.2 1,920
Depn expense 400 1.2 480

=> Assets value on Dec 31, year 2 under temporal method: 1,600+1,920=3,520
=> Acc. depreciation on Dec 31, year 2 under temporal method:
800+960=1,760

2. Dec 1, 20X8, Topica, a U.K Company, makes a sale and ships goods to
Eximco, a U.S compay.
Sales price is 20,000 USD. Eximco agrees to pay in USD by bank transfer on
Mar 1, 20X9
Spot rate as of Dec 1, 20X8 is 1,3$ per £
Spot rate as of Dec 31, 20X8 is 1,32$ per £
Spot rate as of Mar 1, 20X9 is 1,29$ per £
Topica has a December 31 year end.
Required:
1. How does Topica record the sale (in £) on Dec 1, 20X8?
2. How does Topica record the foreign Exchange gain/loss on Dec 31, 20X8
and on Mar 1, 20X9?

Dec 1, 20X8 
Dr. A/R            20,000 x 1,3$ = 26,000 
Cr. Sale Revenue                20,000 x 1,3$ = 26,000  
 
Dec 31, 20X8 
     + A/R = 20,000 x 1,32$ = 26,400  
Dr. A/R               400 £ 
Cr. Sale Revenue           400 £ 
 
Mar 1, 20X9 
      + A/R = 20,000 x 1,29$ = 25,800  
Dr. Loss on Exchange      600 ( 26,400 – 25,800 )  
D. Cash                             25,800  
Cr. A/R                                    26,400