Can someone explain why china is restated using temporal and then translated at al current? Global International Corp. (GIC) has three subsidiaries: GIC Europe whose local currency is the euro and whose functional currency is the euro; GIC China whose local currency is the yuan and whose functional currency is the Hong Kong dollar; and GIC Bahamas whose local currency is the Bahamian dollar and whose functional currency is the U.S. dollar. GIC’s reporting currency is the U.S. dollar. Which conversion methods should be used by GIC for each of its subsidiaries? A) GIC Europe’s data should be remeasured under the temporal method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the current rate method into U.S. dollars; and GIC Bahamas’ data should be translated under the current rate method into U.S. dollars. B) The financial data for all three subsidiaries should be remeasured under the temporal method. C) GIC Europe’s data should be translated under the current rate method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the current rate method into U.S. dollars; and GIC Bahamas’ data should be remeasured under the temporal method into U.S. dollars. Your answer: C was correct! The basis for using the current rate method is when Functional Currency is NOT the same as Parent’s Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent’s Presentation Currency. GIC Europe’s data should be translated under the current rate method; GIC China’s data should be remeasured under the temporal method into Hong Kong dollars, and then translated under the current rate method into U.S. dollars; and GIC Bahamas’ data should be remeasured under the temporal method into U.S. dollars.
When the local currency is different from the functional currency and the functional currency is also different from the reporting currency, then you must remeasure the local to the functional using temporal, then translate from functional to reporting using all current. (You’re dealing with 3 different currencies, not just 2.) If the local currency had been the same as the functional, but both local & functional currencies are different than the reporting ----> all current only (only 2 different currencies) If the local currency was different from the functional and reporting, but the functional was the same as the reporting currency ----> temporal only (again only 2 different currencies) I don’t have my notes/books with me, but its in there.
Well thank you for the explanation, apparently i need to re-read this section because this makes absolutely zero fucking sense to me at all.
kris’ explanation is good. I always visualize the little picture they have in Schweser to remember the relationships. I don’t have the books so I can’t reference a page number, but it’s near the beginning of the Multinational Operations chapter.