Question

Q2:

Crimson Lights Inc. (CL) is a 100% wholly owned subsidiary with operations in France. CL was purchased by a Canadian parent on January 1, 2012. The financial records of CL are maintained in euros and provide the following information with respect to equipment, and goodwill.

Equipment - purchased on January 1, 2012 for €250,000 - depreciated over 5 years on a straight-line basis.

Equipment - purchased on January 1, 2013 for €175,000 - depreciated over 5 years on a straight-line basis.

Goodwill - € 375,000

Foreign exchange rates were as follows:

January 1, 2012 €1 = 1.50

Average for 2012 €1 = 1.48

January 1, 2013 €1 = 1.46

Average for 2013 €1 = 1.45

January 1, 2014 €1 = 1.51

Average for 2014 €1 = 1.58

December 31, 2014 €1 = 1.62

Required:

Assume that CL's functional currency is the euro. Calculate the translated Canadian dollar balances for the following accounts at December 31, 2014.

a. Equipment

b. Accumulated depreciation — equipment

c. Depreciation expense

d. Goodwill

Answer 1

Currency Translation -

Currency translation is the process of converting a foreign entity's functional currency financial statements to the reporting entity's financial statements.

Following exchange rate will be used for currency translation

1. Assets and Liabilities: Exchange rate between the functional currency and reporting currency at the end of the period

2. Income Statement: Exchange rate on the date that income or an expense was recognized; a weighted average rate during the period is acceptable

Translation From CL's functional currency 'EURO' to Canadian dollar

a. Equipment = Exchange rate will be taken as the end of period. December 31, 2014 €1 = 1.62

Equipment - purchased on January 1, 2012 for €250,000 x 1.62 = 405,000

Equipment - purchased on January 1, 2013 for €175,000 x 1.62 = 283,500

b. Accumulated depreciation — equipment = For accumulated depreciation average rate of the respective years will be taken

Equipment - purchased on January 1, 2012 for €250,000

Depreciation in EURO will be = €50,000

Equipment - purchased on January 1, 2013 for €175,000

Depreciation in EURO will be = €35,000

Date	Depreciation in EURO	Exchange Rate	Depreciation in Canadian Dollar
31-Dec-12	50,000	1.48	74,000
31-Dec-13	85,000	1.45	1,23,250
31-Dec-14	Accumulated Depreciation		1,97,250

c. Depreciation expense = For current years depreciation Expences exchange will be taken as average rate of 2014 = €1 = 1.58

Depreciation Expence = 85,000 x 1.58 = 134,300

d. Goodwill = Exchange rate will be taken as the end of period. December 31, 2014 €1 = 1.62

Goodwill - € 375,000 x 1.62 = 607,500