There is a discrepancy that I can’t seem to figure out:
Reading 21 questions:
Pedro Ruiz is an analyst for a credit rating agency. One of the companies he follows … Ruiz is concerned about the effect that the subsidiary’s results might have on Eurexim’s consolidated financial statements. He calls Eurexim’s CFO but learns litte. Eurexim is not willing to share sales forecasts and has not even made a determination as to the subsidiary’s functional currency.
Question 4:
If the Euro is chosen as the Ukraine subsidiary’s function currency, Eurexim will translate its accounts receivable using the:
A) Rate in effect at the transaction date
B) average rate for reporting period
C) rate in effect at the end of the period
Answer C
Question 5:
If the hryvnia is chosen as the Ukraine subsidiary’s function currency, Eurexim will translate its inventory using the:
A) average rate for the reporting period
B) rate in effect at the end of the reporting period
C) rate in effect at the time the inventory was purchased
Answer B
So, regardless of the fucntional currency both the accounts receivable and the inventory is translated at the rate in effect at the end of the reporting period? I don’t understand when you use the end rate, average rate, and beginning rate. I thought that you could use the historical, temporal, or current methods with the temporal being the default.
So again, I understand the effects of using one method versus the other but I don’t understand what conditions would dictate the use of one over the other (e.g. which functional currency dictates which method?)