Translation Method Rules

[rawraw]

Found this on the internet:

So what are the rules that you use to remember the differences between current rate and temporal methods? I tried reducing these two methods into a minimal set of rules that I can remember (an earlier rule overrides the subsequent ones):

1. Common stock: always use historical rate
2. Monetary asset/liabilities: always use current rate
3. Current rate method: except for rule #1, always use current rate for balance sheet accounts, and average rate for income statement accounts.
4. Temporal rate (I) — Revenues and SG&A use average rate , and as a consequence:
5. Temporal rate (II) — Net income and Equity are mixed , because Revenues & SG&A use average rate (and COGS use historical rate).
6. Temporal rate (III) — everything else use historical rate.

[rawraw]

Remember

P - Presentation Currency (think Parent company) F - Functional Currency (main form of business) L - Local (where the sub is located)

If F & L are same, you translate using Current from L/F -> P If P & F are same, you remeasure using Temporal from L -> P/F If F / P / L are all different, you use both Current & Temporal. Temportal from L to F. Current from F to P.

[Me_VS_CFA]

This is a very useful (at least to me) mindmap that I found on currency translations. Check it out. You might find it helpful as well. http://thefatlefttail.blogspot.com/2011/03/cfa-level-ii-foreign-currency.html

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@Me_VS_CFA

This is a very useful (at least to me) mindmap that I found on currency translations. Check it out. You might find it helpful as well. http://thefatlefttail.blogspot.com/2011/03/cfa-level-ii-foreign-currency.html

Very helpful!! Especially:

And this:

[SimplyAdvised]

^ That table above is incorrect. I think you should delete it before someone starts studying off of it.

[mpearc4]

I posted this on a separate thread, but I’ll see if I can get an answer here. If you acquire a company, do you translate their common stock at the date of acquisition, even if they issued the stock years prior? I guess what I’m saying is, can the historical rate go further back than the date of acquisition. Same applies to fixed assets/inventory for temporal.

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@SimplyAdvised

^ That table above is incorrect. I think you should delete it before someone starts studying off of it.

Which part?

[Me_VS_CFA]

It seems correct to me. Which part of the table are you referring to?

[rawraw]

@mpearc4

I posted this on a separate thread, but I’ll see if I can get an answer here. If you acquire a company, do you translate their common stock at the date of acquisition, even if they issued the stock years prior? I guess what I’m saying is, can the historical rate go further back than the date of acquisition. Same applies to fixed assets/inventory for temporal.

My experience with the EOCs and Mocks is they’ll label the appropiate rates to use. But someone else may have better insight