10.4 Current Rate Method

Question 1

The current rate method is applied using the following procedures:

Answer 1

• All income statement accounts are translated at the average rate.
• All balance sheet accounts are translated at the current rate except for common stock, which is translated at the historical (actual) rate that applied when the stock was issued.
• Dividends are translated at the rate that applied when they were declared.
• Translation gain or loss is reported in shareholders’ equity as a part of the cumulative translation adjustment (CTA).

Question 2

Impact of Changing Exchange Rates on Exposure

Answer 2

Question 3

Summary of Temporal Method and Current Rate Method

Answer 3

Question 4

Under the current rate method, exposure

Answer 4

net asset position of the subsidiary

Question 5

under the temporal method, exposure

Answer 5

subsidiary’s net monetary asset or net monetary liability position