Application of Temporal and Current method

CFA Level II FRA
#1

How to decide when to use Temporal or Current Accounting method?

Thanks in advance

Regards,

#2

The book explicitly explain this :smiley:

It depends on what currency is the functional or local.

#3

did you…read the chapter…?

#4

Thanks for the reply. I am still reading the chapter.

Let me rephrase my question:

Say for example if a US based company has a subsidiary in Canada and the subsidiary does all its transactions in Canadian dollars (functional+local currency) than should I use “Current Method”?

And if the subsidiary does all its transaction in US dollars (functional) and its very small portion, then should I use “Temporal method”?

Are these correct?

#5

You use the temporal method to remeasure the local currency into the functional currency when they’re different.

You use the current rate method to translate the functional currency into the presentation currency when they’re different.

#6

This is helpful. Thank you.

Also from pg176 of CFAI:

“This situation will apply when some foreign subsidiaries have a foreign currency as their functional currency (and therefore are translated using the current rate method) and other foreign subsidiaries have the parent’s currency as their functional currency (and therefore are translated using the temporal method)”

#7

My pleasure.