In Schweser it says equity is translated with the current rate under CURRENT RATE method. but I was doing a problem from CFAI and it says equity is translated with historical rate. i was like wtf… and in the FAS book on page 177, it says equity is translated with the historical rate. C I am so confused.
In the current rate method, you are translating your assets and liabilities at the current rate. Therefore, your ending equity balance would be equivalent to translating your equity at the current rate. However, the components of equity are translated at different exchange rates. Our PIC is translated at the historical rate and our ending RE balance is comprised of the previous year’s RE balance plus NI - dividends, which are translated using various rates. So that is where the CTA comes into play. It is the amount used to plug equity in order to balance the balance sheet.
help someone? =(
thanks BPDULOG!
Multiple things happening here. Please follow along slowly. Very similar to what bpdulog has written above. 1. Current Rate Method 2. All A and L are translated at Current Rate 3. Equity as a whole which is (A-L) would also be translated at the Current Rate. 4. Common Stock, which is a part of equity, is by itself translated at the Historic Rate. 5. So a component of Equity (as a whole translated at Current Rate) is translated at Historic Rate. 6. An additional Component of Equity - the Retained earnings (assuming first year of operation) would be fully Net Income - translated at the Average rate. How do 4, 5 and 6 tie together? By including the CTA (which could be a gain or a loss) in the Equity. Does that make sense?
common stock - historical equity = A - L - current rate all of them
Yea makes perfect sense, you guys are too nice!