Method to Use? Local/Func/Report

CFA Level II
#1

so I understand how to value the All-Current Method and Temporal Method but I am having trouble understanding what method to use when a problem is given Local = Currency of Country being referred to Functional= Primary economic envirorement Reporting = Country Prepares financial Statements Local - The local is the currency that the subsidiary will do most of the business? Functional currency is that the currency of the Parent or subsidiary primary enviorment? Reporting - I am assuming is the parent reporting in the country where the parent is located? Here is an exampe… Assume that Scud Co. is a Swiss subsidiary of the U.S. firm Patriot, Inc. On December 31, 2001 the /SF exchange rate was 0.77. (Each Swiss Franc buys 77 cents). One year later the Swiss Franc had appreciated to 0.85 /SF. Scud Co. pays no dividends. The average exchange rate for the year was 0.80 $/SF. Scud pays no taxes. Assume that inventory was bought and sold evenly throughout the year. Assume that the functional currency is the U.S. dollar when answering the following questions. In the Question; Local=Swiss Franc (Subsidiary), Functional = USD (Given), Reporting = USD(Given) Temporal Method (Monetary Asset) Is the reasoning above correct or am I losing my marbles

#2

you are fine in your reasoning.

#3

seems correct to me. eLF’s live in temporate climates. Local to Functional

#4

so lets say in the question, they give you a B/S and I/S in a currency. Is it safe to say that it’s considered the reporting currency?

#5

should be local currency I would imagine

#6

Why would it be the local if the reporting is being shown in a different currency?

#7

bcos they are asking you to convert to the reporting currency of the parent. (translate for temporal, remeasure for current-rate). So I assume it would be the Local currency IS and BS that they would provide.

#8

Heres a visual that helps me. It is about the relationship between LC and FC “T” is for Temporal RC LC --------------------------------- FC | | | | | | | LC and FC are “All-together” (“All Current”) RC LC FC Hope it helps And I agree the B/S and I/S will be in Local currency when presented.

#9

damn spacing “T” is for Temporal RC LC --------------------------------- FC " | " " | " " | " " | " " | " " | " " | "

#10

“always fun to present” all current functional --> presentation

#11

thanks all. I will just need to hit a few more questions on this topic because it’s a must