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Current Rate Method - Net Income


Under the current rate method for FX accounting, net income is recorded at the average FX rate (since topline and all associated expenses within the P/L are at the average rate). However, in order to make the balance sheet balance, since assets and liabilities are at the current rate the shareholders equity section must also be at the current rate.

How would this work, net income (which is at the average FX rate) feeds into shareholders equity on the balance sheets (which would be at the current FX rate).


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heres my notes for this topic- 

 For the current rate method- we start off with the income statement first. Once that is filled out, with average rates, we move forward to the balance sheet. On the balance sheet everything is current rate except for equity, or more specifically common stock. We then calculate retain earning by taking the beginning year number adding in NI (probably more adjustments if we were to do it for real, like dividend payout etc. but you get the point). Finally we calculate CTA.