# memorizing temporal method rates and convertable bond formulas

anyone have a strategy for this? i got the All Current method memorized, but i cant memorize temporal for the life of me

If the Local Currency=Functional Currency, then use All Current. If the Functional Currency is any other currency (parent’s or otherwise), use Temporal. From this you can derive that independent subsidiaries use All Current, and closely held and monitored divisions use Temporal. Highly inflationary environments are a special exception. They will use Temporal.

nonono the diffeent rates to use fo the diff BS and IS items for the temporal method

The only thing that is affected with the temporal method are non-monetary items. Inventories, Net PPE, and depreciation on the B/S Inventories and Depreciation on the I/S which gives you a mixed rate for NI.

yes. Remember in temporal method you start by converting the balance sheet. there are two types of items. Monetary and non monetary. Monetary items like cash are converted at the current rate. This makes sense because cash is liquid and why wouldnt it be converted to reflect market value. Non monetary items such as PP+E are converted at historical rates. This is how temporal methods solves the disappearing plant syndrome. If you were to convert at the current rate and the LC was depreciating then there would be less and less to convert at current value and the non monetary assets would “disappear” off of the balance sheet. Next move onto the I/S. You have balance sheet related and non b/s related. Non b/s related such as sales use a weighted avg (just like in the all current method) however B/S related is converted at historical cost. Think about it like this, if you have fixed assets on the B/S and you convert at historical level then depreciation (a b/s related item) must also use historical method to keep it in line.

There’s a rhythmn to this: C HHM A HHM Can you hear the rhythmn?

I just use a mental chart that i practice writing every other day along with other formulas. I find that once I can spit this out from memory I can work through any of these questions. It is basically from the secret sauce book. First I write down my headers. LC…FC…RC …Tem…AC… …Rem…TR… Now, it is easy to see what method is used given what is the Functional currency. For example, if the LC is the FC then it looks like this. LC FC…RC …AC… …TR… So we know we are using the All-Current (Translation) method. Now on to remembering what rates are used. Make sure you use the same headers as above so they continue to get ingrained in your mind. …LC…FC…RC Start with BS Items. (we know the All current method uses only CR in the BS) Monetary A and L_________CR________________________CR Non Monetary A and L______HR_______________________CR (NMAL are Inventory and PPE) Common Stock____________HR_______________________HR Equity_________________Mixed (Because NI is Mixed)______CR Then Move through the IS. (we also know pure ration using the AC method are not distorted. Therefore we know the IS uses only the AVG for the all current method) Rev____________________AVG_______________________AVG SGA____________________AVG______________________AVG Dep (PPE uses HR)_________HR_______________________AVG Cogs (Inv uses HR)________HR________________________AVG NI_____________________Mixed______________________AVG Also when faced with ratio questions first identify what the LC is doing. If LC is depreciateing write the following down. -LC: HR>AVG>CR or +LC: HR

amazing mandelbrot… !!! C HHM A HHM … C HHM A HHM … C HHM A HHM … C HHM A HHM … C HHM A HHM … C HHM A HHM …C HHM A HHM … I’ll be singing it all day!!!

Niblita75 Wrote: ------------------------------------------------------- > The only thing that is affected with the temporal > method are non-monetary items. > > Inventories, Net PPE, and depreciation on the B/S > Inventories and Depreciation on the I/S which > gives you a mixed rate for NI. I’m guessing you mean COGS and Depreciation on the I/S?

Yep, thanks for catching my mistake.

Temp MCs in NH IS DCH = Temporal has Monetary using Current rates and NonMonetary using Historical Income Statements have Depr and COGS using Historical. Hope that helps!