Can anybody explain the explanation in bit detail.
In a hyperinflationary economy, translation under the current rate method will most likely result in relatively:
A) low balance sheet values for long term liabilities. B) high balance sheet values for long term assets. C) high translation gains.
In a hyperinflationary economy, translation under the current rate method will most likely result in relatively low balance sheet values for assets and liabilities. Translation losses will also occur.
The current rate translates all balance sheet items at (except for equity) at the current rate. In a high inflation environment the local currency will depreciate so the exchange rate will fall. If you use the current rate you will report an ever smaller value on the parents balance sheet. Here is an example FC:USD = 1:1 in year 1 when you buy an asset for FC1,000 you report consolidated asset of USD1,000 Year 2 FC:USD = 0.20 now you report consolidated asset of USD 200 Year 3 FC:USD = 0.10 now you report consolidated asset of USD 100