currency trans gain/loss - temporal method

CFA Level II
#1

hi all, in the temporal method, is the currency trans gain/loss reported before tax, or net of tax on the income statement? showing me a typical format of that would be nice :slight_smile: thanks

#2

Short Answer: 1. It’s recorded Pre-Tax 2. There is not specific place where it is required to be disclosed (both under IFRS or US.GAAP), some companies disclosed as part of SGA, some unders COGS

#3

oooh yeah, I remember an EOC question about that; it asked you something about whether and how the Gross profit margin, operating profit margin, and net profit margin would be affected by the firm’s decision to consider it an SGA or CoGS item… it’s all coming back now thanks

#4

actually, I have another question about this now; does this mean the figure you would report would be calculated as follows: actually, I have another question about this now; does this mean the figure you would put on the IS for CT gain/loss would be calculated as follows: CT gain/loss = [REend – (REbeg + NI before CT gain/loss – Div)]/(1–T)

#5

I’ve looked and I’ve looked in CFA text for what you say about this treatment, and it doesn’t say what you’re telling me anywhere with respect to the currency trans adjustment; what it does show is several examples with the following: Income b4 translation $XXX translation gain/loss $XXX Net Income $XXX So I’m inclined to say this is how it’s done… anyone else care to give their two cents?

#6

just to clarify CTA is applicable to all current method (adjustment to SE) and remeasurment g/l to temporal method (adjustment to NI) now to your comment, CTA is a the balancing figure in R/E as you have posted CT gain/loss = [REend – (REbeg + NI before CT gain/loss – Div)] (no adjustment for tax).

#7

Yeah, the CTA is a cumulative balance sheet item in current rate method, but I’m comfortable with that one. What I’m talking about the single period translation gain/loss that you use in the temporal method to adjust net income so that the following balances: REend = REbeg + NI - Div You need to adjust NI, cuz it won’t balance this equation when you straight up do the income statement translation at the weighted average (as you’re supposed to for temporal method). my question is how you show the translation gain or loss in the income statement. In the CFA text, it shows it like this: Income b4 translation $XXX translation gain/loss $XXX Net Income $XXX and buddy from above is saying it goes under either of CoGS or SG&A, and I’m very skeptical about that perspective since I can’t find that in the text, and examples are laid out in the way I’ve shown here.

#8

I have been through the EOC and I didnt see any question asking if the remeasurement g/(l) ends up in SG&A or COGS. My answer is it doesnt go in either - it just sits between Net Income before and after remeasurement Net income before Remeasurement (from NI) Remeasurement gain/loss (plug) Net Income after Remeasurement (from RE) [REend = REbeg + NI - Div] As long as you can get to the right answer for gain/loss with the above method, I dont think the format or the tax implication is material Remeasurement Gain or Loss is a plug figure to Net Income that forces the Beginning Retained Earnings balance plus Net Income less Dividends to equal Ending Retained Earnings.

#9

^ yeah, that’s what i’m thinking too, not sure where guille got the CoGS and SG & A thing from.