A subsidiary's functional currency is the local currency that 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
A) Exit exchange rate
B) Historical exchange rate
C) Weighted average exchange rate over the economic life of each plant asset
D) Weighted average exchange rate for the current year

Question

Quizplus · Accepted Answer

The historical exchange rate is used for translating the depreciation on plant assets in the income statement of a foreign subsidiary when the subsidiary's functional currency is the local currency that has not experienced significant inflation. This is because the historical rate reflects the exchange rate at the time the assets were acquired, which is relevant for accurately translating non-monetary assets like plant and equipment that are recorded at historical cost.

A Subsidiary's Functional Currency Is the Local Currency That Has