Between these two questions. Why is it in one we use the historical rate for the Depreciation expense and in the other we use Current rate ?
Example 1
The France Company owns a foreign subsidiary with 2,400,000 local currency units (LCU) of property, plant, and equipment before accumulated depreciation at December 31, year 3. Of this amount, 1,500,000 LCU were acquired in year 1 when the rate of exchange was 1.5 LCU to $1, and 900,000 LCU were acquired in year 2 when the rate of exchange was 1.6 LCU to $1. The rate of exchange in effect at December 31, year 3, was 1.9 LCU to $1. The weighted average of exchange rates which were in effect during year 3 was 1.8 LCU to $1. Assuming that the property, plant, and equipment are depreciated using the straight-line method over a 10-year period with no salvage value, how much depreciation expense relating to the foreign subsidiary’s property, plant, and equipment should be charged in France’s income statement for year 3? Assume the US dollar is the functional currency.
$133,333
$156,250
$126,316
$150,000
Example 2
A subsidiary’s functional currency is the local currency, which has not experienced significant inflation. The appropriate exchange rate for translating the depreciation on plant assets in the income statement of the foreign subsidiary is the
Weighted-average exchange rate over the economic life of each plant asset.
Exit exchange rate.
Historical exchange rate.
Weighted-average exchange rate for the current year.
.