Equity method for foreign subsidiary

CFA Level II FRA
#1

Hi all, I have a doubt regarding the accounting treatment for a foreign subsidiary in which a company holds 20%<=x<50% stake… if the presentation, functional and local currencies are all different, would the usual temporal and current rate methods be followed for recording the equity investment on the holding company’s balance sheet?? Just wanna clarify this…

#2

If there is such question on the exam I would go for current method but I’m not 100% sure in my answer.

#3

Current method for associates probably.

You report the associate at cost which is the spot rate at that time, then the net income is the average rate in (almost) both methods. Dividends are in current rates.

#4

Thanks a lot @Gebura, @MrSmart for the help!! :slight_smile:

#5

I think dividends are in historical rates in the current method.

#6

If local currency, functional currency, and presentation currency are different (LC FC PC), then: The temporal method is used to convert local currency amounts into functional currency; and then The current rate method is used to convert functional currency amounts into presentation currency.

Wiley Study Guide 2015, MULTINATIONAL OPERATIONS , P215

#7

Correct, I was thinking that dividends are paid at the same time of reporting.