Temporal method: depreciation expense

Equipment

Date		Balance (LCU)	LCU/$
beginning of 2006	Purchase equipment	975	1.00/1
2007	Destroyed equipment	-108
end of 2007	Receive an insurance settlement for the loss	92
6/30/2008	Purchase equipment	225	1.25/1

in LCU (local currency unit) millions

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[Question]
Assuming that the equipment is depreciated using the straight-line method over ten years with no salvage value, calculate the subsidiary's 2008 depreciation expense under the temporal method.

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Answer:

Temporal method→depreciation: (H) Historical FX rate

((975-108)-0)/10 = 86.7 LCU
86.7 LCU * (1.00USD/1.00LCU) = 86.7 USD million

(225-0)/10 * 0.50 = 11.25 LCU

11.25 LCU * (1.00USD/1.25LCU) = 9 USD million

86.7 + 9 = 95.7 USD million