A Danish subsidiary of a U.S. corporation recorded a building it purchased in 2020 for 100,000,000 krone, when the exchange rate was $0.132/krone. The current exchange rate is $0.163/krone. Under the temporal method, how should the translated amount of the restated asset be interpreted?
A) The U.S. parent would have to pay $16,300,000 to acquire the building today.
B) The U.S. parent would have had to pay $13,200,000 to acquire the building in 2020.
C) The building is worth $13,200,000 to the U.S. parent today.
D) None of the above

Question

Quizplus · Accepted Answer

Under the temporal method, the historical exchange rate at the time of the asset purchase is used to convert the local currency value into the reporting currency. Therefore, the building was recorded at $13,200,000 ($0.132/krone x 100,000,000 krone). The current exchange rate is not relevant for restating historical balances. Therefore, choices A and C are incorrect. Choice B correctly states the amount the U.S. parent would have had to pay in 2020 to acquire the building.

A Danish Subsidiary of a U