I need someone else to check this out…
relevant vignette:
"Alberta Smith Mining (ASM) is a large Canadian resources company specializing in the extraction and processing of bulk materials. The company has its headquarters in Toronto, and has a number of subsidiaries around the world. The majority of ASM’s sales are denominated in USD, as is a large portion of its operational costs. Most of ASM’s financing is in USD; however, ASM is listed on the Toronto Stock Exchange and prepares its financials in CAD.
Kim Waleed, CFA, a member of the ASM finance department, is currently working on converting several of the subsidiary accounts into their presentation currencies. ASM follows International Financial Reporting Standards (IFRS), and Waleed has received the accounts for the following subsidiaries: • ASM Greater West, a U.S.-based logistics business, which reports in USD • Cape Iron, a South African mining business, which reports in ZAR"
question:
- In regard to the U.S. and South African subsidiaries, which of the following is most correct?
A. Both ASM Greater West’s accounts and Cape Iron’s accounts should be translated using the temporal method.
B. Cape Iron’s accounts should be translated using the temporal method, but ASM Greater West’s accounts do not need translation.
C. ASM Greater West’s accounts should be translated using the current rate method, and Cape Iron’s accounts should be translated using both the current rate method and the temporal method.
Answer: C. ASM’s functional currency is likely to be USD due to the level of sales and expenses denominated in USD. ASM Greater West’s local currency (USD) is the same as ASM’s functional currency. In translating the USD amounts into CAD (ASM’s presentation currency), Waleed should use the current rate method. Cape Iron’s local currency (ZAR) is different from ASM’s functional currency (USD) and presentation currency (CAD). Waleed should translate the ZAR into USD first using the temporal method (as if all transactions were conducted in USD), and then into CAD using the current rate method.
…why would they use current rate if the currency is the same?