Question

Assume that a parent company sets up a subsidiary to produce printed circuit boards in a foreign country that has lower tax and labor rates. The subsidiary purchases components from the parent, produces the PCBs, and then sells them back to the parent. The subsidiary keeps its books in the local (foreign) currency, but all purchase and sales prices are pegged to US doller. At what rate would be depreciation expense recorded in the subsidiary's books be translated to US dollars?a. The current rateb. The average rate of the yearc. The historical rate that was in effect when the related asset was purchasedd. The beginning of the year rate

Answer 1

The correct option is C

Step-by-step explanation:

Even though for all the incomes and the expenses we usually use the average rate for the year, however, in case of the allocations like the depreciation or an amortization of deferred revenue, we usually use the historical rate of when such allocation was made, that is when such an asset was purchased in the current case.

Therefore, the correct answer is "C" : The historical rate that was in effect when the related asset was purchased.