Is the term used to indicate the amount invested in property plant and equipment in another country
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Publication date: 31 May 2022 us Foreign currency guide 4.6 Property, plant and equipment are nonmonetary assets. Property, plant and equipment purchased in a foreign currency should be initially measured and recorded in an entity’s functional currency using the exchange rate on the date it is acquired. It should not be subsequently remeasured for changes in exchange rates during the period it is held. Example FX 4-3 illustrates the depreciation of equipment purchased in a foreign currency. EXAMPLE FX 4-3 USA Corp is a US registrant with a US dollar (USD) functional currency. Britannia PLC is a foreign entity of USA Corp located in the United Kingdom. Britannia PLC maintains its books and records in the local currency, British pound sterling (GBP), but management has determined its functional currency is the euro (EUR). Britannia PLC purchased fixed assets for GBP 500,000 on January 1, 20X1 when the exchange rate was EUR 1.3 = GBP 1. The fixed assets have a useful life of five years. How should Britannia PLC compute annual depreciation expense in the currency of its books and records, British pound sterling, and its functional currency, the euro? Analysis Britannia PLC would first measure and record the fixed assets using the exchange rate in effect at the date of purchase. GBP 500,000 × [1.3 EUR / 1 GBP] = EUR 650,000. Britannia PLC would then calculate annual depreciation using the exchange rate in effect on the date of purchase. The following table shows the calculation of annual depreciation expense.
View table Changes in exchange rates subsequent to the acquisition of the fixed assets do not impact depreciation or the carrying amount of the fixed assets in the functional currency financial statements. For more information on remeasurement of local currency financial statements into a reporting entity’s functional currency, refer to FX 5.4. 4.6.1 Impairment of property, plant, and equipmentProperty, plant and equipment impairment assessments should be performed in an entity’s functional currency. When an entity maintains its books and records in a currency other than its functional currency (e.g., the currency of the local economy), it is possible to conclude that an item is not impaired for its local currency books and records, but is impaired for its functional currency financial statements (or vice versa). Such differences require an entity to either record or reverse impairment charges to produce its functional currency financial statements. Question FX 4-1 PwC response It depends. When the local currency declines relative to an entity’s functional currency, there is a higher likelihood that the impairment assessment (performed in the functional currency) will indicate that an impairment charge should be recorded. However, a decline in the local currency alone does not indicate that an asset is impaired; an undiscounted cash flow analysis should be performed in the functional currency to determine whether an impairment charge should be recorded. For more information on impairment of property, plant, and equipment, please see Chapter 5 of PwC’s guide to Property, plant, equipment, and other assets. PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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Which of the following is a characteristic of foreign direct investment?Foreign direct investments are characterized by a notion of 'lasting interest'. Having a lasting interest in the business where the investment is being done is a significant characteristic of FDI.
Which of the following is an example of a greenfield investment?Answer and Explanation: The correct answer is: A) A Chinese sugar maker setting up a sugar crushing facility in Cuba. An investment by a company in which the company starts its operation in the other country, and the other country acts as a subsidiary to the main company is referred to as Greenfield investment.
Which of the following is an example of US foreign portfolio investment?Examples of foreign portfolio investments include stocks, bonds, mutual funds, exchange traded funds, American depositary receipts (ADRs), and global depositary receipts (GDRs).
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