Question #108
Reading: Reading 10 Multinational Operations
PDF File: Reading 10 Multinational Operations.pdf
Page: 60
Status: Unattempted
Correct Answer: A
Part of Context Group: Q107-108
Shared Context
Question
With respect to the British subsidiary, what method should be used to value its fixed assets, what is the appropriate exchange rate, and what is the translated value (USD)?
Answer Choices:
A. Temporal method, historical rate, USD 547.7 million
B. Current method, historical rate, USD 547.7 million
C. Current method, current rate, USD 599.7 million
Explanation
Subsidiaries reporting their results in the local currency that is NOT the functional
currency use the temporal method. Fixed assets under the temporal method are
translated using the historical rate. Hence, 370 × 1.4803 = USD 547.7 million.
(Module 10.4, LOS 10.e)
Neptune Corporation (Neptune) is a U.S. company located in Detroit, Michigan. Neptune
supplies exhaust emission systems to manufacturers of passenger cars and light duty trucks.
In January 2006, Neptune formed a wholly owned subsidiary, Continental Systems GmbH
(Continental), to supply automotive manufacturers located throughout Europe. Continental
is located in Stuttgart, Germany.
Neptune reports its consolidated financial statements in U.S. dollars. The euro has been
consistently appreciating against the dollar.
Continental accounts for its inventory using the first-in, first-out (FIFO) cost flow assumption.
Fixed assets consist of machinery, tools, and equipment.
Contintential has net monetary assets.