Someone please help with this - been struggling for days now
So, in the reading for multinational operations, CFAI book’s Example 7 restates the balance sheet and income statement for inflation and recognizes a purchasing power gain in the income statement. Then, every single account in both financial statements (including the purchasing power gain) is multiplied by the current exchange rate and then the book states this: “Note that all inflation-adjusted FC amounts are translated at the current exchange rate, and thus no translation adjustment is needed.”
However, question 32 in the EOC for this reading asks for the CTA gain/loss after restating for inflation and translating using the current exchange rate. This doesn’t make sense to me because the way I understand it is that when you restate for inflation there would only be a purchasing power gain/loss in the income statement and then every account is multiplied by the same exchange rate so there would be no need for a CTA. However, all of the question’s answer choices ask for the CTA and the solution solves for the CTA.
Cash is a fact, profit is an opinion
Study together. Pass together.
Join the world's largest online community of CFA, CAIA and FRM candidates.