I’m looking at page 194 of Schweser. The table summarizing the application of the temporal and all-current method is throwing me for a loop when it comes to translating equity under the all-current method. They have lumped all of equity together and say to translate it at the current exchange rate. However, on page 190, the authors say that all balance sheet accounts should be translated at the current exchange rate, EXCEPT Common Stock. It says Common Stock should be translated at the historical rate (rate at issuance). It also says that dividends paid out should be translated at the historical rate. Common Stock is certainly an equity account and paying dividends reduces Retained Earnings, also an equity account. Under the all-current method, can someone please clarify how to translate: 1. Common Stock 2. Retained Earnings 3. Dividends paid Thanks!
common stock is rate when stock got issued for both AC and temporal divs i would think the same, historical RE equation is beggining RE + NI - divs… so all current NI is ave px, divs are historical (date div issued). as for beginning RE, that’s a good question. not certain, i’d almost think historical/the date where that financial statement was measured but not certain. schweser prob says equity as a whole is “current” b/c both the monetary assets/liabilties and non-monetary A/L using AC is at current rate, so A - L = E… you do both the A and L at current… E should be that way as well. but i hear you in that this prob isn’t the best thing to say b/c there are other things not translated at current rates.
dividends rate == Rate on date when the dividend was paid. (That is what Historical means in this case, just to clarify). Now all of the income statement is at the average rate. This means that the Retained Earnings which goes to the Balance sheet is at an average Rate. Equity as a whole is translated at the Current Rate. Now this would mean there is a difference between the Sum of the individual parts of Equity and the Equity that has been “translated” to the Current Rate. That difference becomes the “CTA” -> Cumulative Translation Adjustment - which is also a part of the OCI (hence part of Equity) --> and this CTA could either be a gain or a loss. Do not know if what I have written above makes sense.
you are right on the divs- i said issued, it’s paid. CTA is always something i need to come back to and practice. I haven’t hit up much qbank yet this year, but SS6 will be a must hammer again and again. at least we don’t have to calc out the holding/flow stuff this year, although once you got the hang of that, it wasn’t too bad. i’m on SS11 in equity, finishing porter’s fluffier stuff and heading right into the trainwreck that is emerging market valuation. this is one area where i’m tempted to just say PASS vs a dive deep and move along. i really shouldn’t. but it’s just not easy. i hope to get back on track and finish SS11 and start into SS12 over the long weekend.
Bannisja Make sure you do a Update on your QBank software - before you start to hit up on SS6. I had talked to Schweser and they had promised that they would update QBank removing the “previous” questions related to Flow/Holding effect which were still present in the 2009 version up until now. When I updated last, there were a whole bunch of questions updated - hopefully - they related to that.
I was wondering why there were Q’s on Flow and holding effect. I even went back and skimed throught the LOS to see what was up. Hey cpk123, Did you notice any other topics with old LOS topics or Q’s?
i still think there are some questions on Economics related to “Asset market approach” - I guess no one has complained to schweser to retire those questions since there are no LOSs pertaining to those.