Is there a formula as to when you should multiply/ divide the items on the is/bs to adjust for the current/temporal method? In the reading its phrased as you multiply, but I have found several practice exams where you divide by the appropriate rate instead of multiply, and I am not able to seem to figure out when do divide vs multiply.
It depends purely on the notation. Is the exchange rate quoted as foreign currency / domestic or domestic / foreign.
Assume parent is in the US and subsidiary in the UK. if you are looking at the subsidiaries financials and they are figures represented in pounds so Total Assets say 100 000 (£).
Assume separate operations functional =/= presentation therefore current method applies and all assets and liabilities are converted at current rate.
you are then given a current rat eof 2. (/£) for every 1pound you can convert to 2 therefore multiply. The exchange rate is equal to 0.5 when quoted £/$ now you would dived to get into dollars.
use economics term down the offer divide up the spread and multiply (note no bid/offer given in FRA) if you start on top of the exchange (quoted £/) you have pound financials want dollar so you are going down so divide 100 000 by 0.5. Or going up the (/£ so multiply by 2)
Net result $ 200 000.
long winded I know, but it’s a simple concept just take time to understand what you are doing, hope it helps
Thanks that actually helps a lot.