Confused on when to use temporal or current rate method

CFA Level II
#1

When i was originally learning this, something was said about a “highly integrated” company being demonstrated by which currency was used.

I thought this would be the case where the current rate method was used, but it turns out that for CRM the FC=LC NOT the PC.

So would i be right in saying that you actually use the temporal method if the company is highly integrated? i.e. PC=FC

#2

Temporal - when there is no autonomy.

Current - when the subsuduary is autonomous (makes its own decisions and functions separately from the parent.

#3

L --> F = T (I think of that as “left”)

F --> P = C (I use an inappropriate phrase so you might have to think of your own here)

Then if you can remember the orginal order of Local - Functional - Presentation then you can fill in the gaps: if you need to translate local to functional, that means functional must = presentation and if you need to translate functional to presentation, that means local must = functional.

Local is the currency of the subsidiary’s country. Presentation is the curreny of the parent’s financial statements. You are left to determine which is Functional - which currency does the majority of the subsidiary’s business operate with? Is the management local and do they make their own decisions?

That’s the way I simplify it in my mind anyway and it seems to work.

#4

lol

#5

Yup lol

#6

I use RighT = LeFt Remeasurement(Temporal) = Local to Functional.

#7

Yes highly integrated -> FC = PC -> temporal

#8

I wrote an article on this very question: http://financialexamhelp123.com/current-rate-vs-temporal-why-two-methods/

#9

That’s a fantastic write up, S2000. I can’t tell you how many questions I’ve gotten wrong on this seemingly very simple concept over the past few months. Thanks!