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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
Depreciation of fixed assets purchased in a foreign currency
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.
GBP
EUR
Purchase price
GBP 500,000
EUR 650,000
Useful life
5 years
5 years
Annual depreciation
GBP 100,000
EUR 130,000
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 equipment

Property, 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
Will an impairment charge result when a local currency (in which an entity maintains its books and records) declines relative to an entity’s functional currency?
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.
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