Reading 15 ■ Multinational Operations - Question 33

Question 30: Based on Exhibit 1 and Note 4 in Exhibit 2, the total intangible assets on Ngcorp’s balance sheet as of 31 December 2016 are closest to:
A ₣B12.54 million.
B ₣B12.71 million.
C ₣B13.04 million.
*Note 4: The 2016 consolidated balance sheet includes Ngcorp’s total intangible assets of NVK3 million, which were added to Ngcorp’s balance sheet on 15 July 2016.

Answer:
B is correct. Because Ngcorp has a functional currency that is different from Ambleu’s presentation currency, the intangible assets are translated into Norvoltian kroner using the current rate method. The current ₣B/NVK exchange rate is 4.2374 as of 31 December 2016. Thus, the intangible assets on Ngcorp’s 2016 balance sheet are NVK3 million × ₣B4.2374/NVK = ₣B12.71 million.

I would have thought that the intangible assets will be recorded on Ngcorp’s book balance sheet on 15 July in their local currency upon the purchase, and hence, we will have to use the end period rate, 4.2374, to convert whatever amount in FB currency that was already recorded.
i.e. NVK 3million* FB/NVK rate on 15 July (4.1790) = FB 12,537,000
FB 12,537,000/4.2374 = 2,958,653.89 NVK

However, the answer seems to have just converted the intangible assets straight to FB using NVK 3million, as if the asset was never recorded on Ngcorp’s book.

Ambleu had intangibles worth NVK 3 million from Ngcorp. How much is that NVK 3 million worth on that same date on Ngcorp’s statements? Or the other way around, if Ngcorp had intangibles worth 12.71 on their balance sheet as of December 2016, how much are those intangible worth in NVK? At the current rate, NVK 3million.

Hey, thanks for answering both my questions posted on the forum! They helped a lot!
Wish you a blessed day ahead :slight_smile: