current method translation

CFA Level II FRA
#1

I’m trying to wrap my head around the logic behind some of these ideas. So when using the equity method, I obviously understand and can memorize that most balance sheet items are translated at current rate. But why is equity translated at a historical rate? Is there logic behind this exception?

Additionally, it makes sense to me that under the equity method, sales and costs are translated at the average rate. (I think) the logic behind this is that those sales and costs took place throughout the year and not once at the end of the year. But what’s the logic for using historical rates when converting an income statement using temporal method?

Again- just hoping to understand the logic behind these concepts…I’m certainly capable (I hope :)) of memorizing these differences…

#2

The logic is in underlying BS items. Non-monetary BS items are recorded by historical cost and therefore historical exchange rate is applied. All linked P/L items are therefore also translated (measured) by applying historical exchange rate by temporal method.

#3

why is equity translated at the historical rate then?

thanks,

#4

Not entire equity position, only paid in capital because it is a non monetary item.

#5

thanks!