Can anyone explain the logic to me behind converting net assets as a whole(Common Stock + RE + CTA) using the current rate despite containing common stock which is supposed to be translated using historic rates?
Hey CFA21,
I can do that.
Go back to the accounting equation: Assets - Liabilities = Equity
Using the current rate method, all assets are translated at the current rate. All liabilities are translated at the current rate. Hence net assets are translated at the current rate.
For the balance sheet to balance, equity (in total) must also therefore be translated at the current rate.
Common stock, as you say, is at historic, but the CTA takes care of the exchage differences to make sure in total, equity is at the current rate.
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Brill, thanks Richie!