Question

Translation and Remeasurement of Depreciable Assets

Massmart, the second largest retailer in Africa, is a subsidiary of Wal-Mart Inc., a U.S. company. Massmart reports its accounts in its local currency, the rand (R). Wal-Mart’s fiscal year ends January 31. On February 1, 2018, Massmart reports facilities with original cost of R500 million and accumulated depreciation of R280 million in its noncurrent assets, as follows:

• Buildings acquired at a cost of R175 million when the exchange rate was $0.15/R, with accumulated depreciation of R100 million. The buildings are being depreciated on a straight-line basis over 25 years.

• Equipment acquired at a cost of R325 million when the exchange rate was $0.12/R, with accumulated depreciation of R180 million. The equipment is being depreciated on a straight-line basis over 10 years.

Additional exchange rates:

February 1, 2018	$0.10
Average for fiscal 2019	0.08
January 31, 2019	0.07

Massmart still holds these facilities at January 31, 2019.

Required

a. Assume that Massmart’s functional currency is the rand. Calculate Massmart’s translated facilities, at cost, and related accumulated depreciation, at January 31, 2019, and its translated depreciation expense for fiscal 2019.

b. Now assume that Massmart’s functional currency is the U.S. dollar. Calculate Massmart’s remeasured facilities, at cost, and related accumulated depreciation, at January 31, 2019, and its remeasured depreciation expense for fiscal 2019.

Enter answers using all zeros (do not abbreviate to millions or thousands).

		a. Translated	b. Remeasured
Facilities, at cost		Answer	Answer
Accumulated depreciation		Answer	Answer
Depreciation expense		Answer	Answer

Answer 1

Answer:

	a. Translated	b. Remeasured
Facilities, at cost	35,000,000	65,250,000
Accumulated depreciation	22,365,000	41,550,000
Depreciation expense	3,160,000	4,950,000

Calculation

a. Translated:

Depreciation expense

	Cost	Life	Cost / Life
Buildings	175,000,000	25	7,000,000
Equipment	325,000,000	10	32,500,000
Total			39,500,000

Then, 39,500,000 * 0.08 =  3,160,000

Translated Depreciation expense = $ 3,160,000

Facilities and accumulated depreciation:

Facilities, at cost = R500,000,000 x $0.07 = $35,000,000

Translated Facilities, at cost = $ 35,000,000

Accumulated depreciation = (R280,000,000 + R7,000,000 (building) + R32,500,000(equipment)) x $0.07 = $22,365,000

Translated Accumulated depreciation = $ 22,365,000

b. Remeasured:

Depreciation expense

	Cost (a)	Life (b)	Depreciation (c)= (a)/(b)	Exchange rate (d)	Remeasured (c) * (d)
Buildings	175,000,000	25	7,000,000	0.15	1,050,000
Equipment	325,000,000	10	32,500,000	0.12	3,900,000
Total					4,950,000

Remeasured Depreciation expense = $ 4,950,000

Facilities, at cost

	Cost (a)	Exchange rate (b)	Remeasured (a)* (b)
Buildings	175,000,000	0.15	26,250,000
Equipment	325,000,000	0.12	39,000,000
Total			65,250,000

Remeasured Facilities, at cost = $ 65,250,000

Accumulated depreciation:

(R100,000,000 + R7,000,000 (Dep. Exp Buildings) x $0.15 = $ 16,050,000

(R180,000,000 + R32,500,000 (Dep. Exp Equipment) x $0.12 =$ 25,500,000

So, 16,050,000 + 25,500,000 = $ 41,550,000

Remeasured Accumulated depreciation = $41,550,000