Quick Question - Current Method - Calc Retained Earnings

CFA Level II
#1

Hi guys,

I’m a little stuck on the methodology used to calculate translation adjustment using the Current Method - specifically calculating Retained Earnings confuses me. Can anyone provide some insight???

I have been converting income statement items at average rate to obtain Net Income. Then I deducted dividends from Net Income to obtain change in Retained Earnings. The problem is this only calculates change in retained earnings and assumes that there were no retained earnings from the previous periods…

Therefore just want to confirm how you calculate the Retained Earnings plug for the Current rate method that takes into account all Retained Earnings.

Would really, really appreciate someone’s thoughts on this…Thanks

#2

You add the change to the starting balance in RE, and the rest is FX translation to balance the BS.

#3

Great!! Thanks Mr Smart, is the rate we should translate the starting balance in RE the Average rate (to be consistnent with NI calculation) or the Historical rate (to be consistent with B/S) - this part is somewhat confusing???