CFAI sample 2 Q # 11

CFA Level II
#1

why is equity translated at historical rate? they don’t specify if its all common stock. i thought equity was translated at current rate under the current method if no info provided? what say?

#2

Equity is translated at the historical rate under both methods… the retained earnings coming from net income are from average rate (under all current)… and mixed under temporal method

#3

wierd. i’m pretty sure in the threads of the past 2 months ive seen equity being translated automatically at the current rate if nothing if nothing is specified. i do know that common stock and dividends are at historical for both methods. ideas people?

#4

I agree - the total equity post translation is effecive the equity pre translation times current exchange rate (if all assets and liabs go at current rates, then total equity will also). Seems as though they are excluding the translation gain/loss from the equity number - which makes no sense to me…

#5

This question made zero sense. Should be translated at the current rate, and ROE should be based on the beginning of the year equity level. Should be this year’s net income translated at the avg rate/beginning of the year equity translated at the current rate…especially if nothing else is specified.

#6

Lol

#7

This would be where skillonaire comes in and tries to confuse you guys more lol

#8

Have a look at p169 of CFAI book to…they work out ROE - they way they do it is NI based on a translation at average rate… then equity is effectively the year end equity translated at current rate (or translated at historic rate +/- NI +/- translation = year end equity translated at current rate). These guys are ridiculous!

#9

so whats the final verdict on this one?

#10

the CFA Institute has it wrong. on an email sent to them - they respond back saying that pg 157-158 of the book says SH Equity should be measured at Historical. I have sent them a mail back as well, with this discrepancy and the pg 169 reference - they have not yet gotten back to me. I have confirmed this however with other sources that Current Rate is correct. and that 22.5% should be the right answer. But just in case in the exam you do not get the right answer in this manner - look for the potential wrong answer calculated with the Equity @ Historical rate.