Module 10.2: Translation

Question 1

There are two methods used to remeasure or translate the financial statements of a foreign subsidiary to the parent’s presentation (reporting) currency.

Answer 1

Remeasurement
Translation

Question 2

Remeasurement

Answer 2

converting the local currency into functional currency using the temporal method.

Question 3

Translation

Answer 3

converting the functional currency into the parent’s presentation (reporting) currency using the current rate method.

Question 4

Generally, we can use the following to determine the appropriate translation method:

Answer 4

• If the functional currency and the parent’s presentation currency differ, the current rate method
• If the functional currency is the same as the parent’s presentation currency, the temporal method
• In the case where the local currency, the functional currency, and the presentation currency all differ, both the temporal method and the current rate method are used.
• If a subsidiary is operating in a hyperinflationary environment, the functional currency is considered to be the parent’s presentation currency, and the temporal method is used under U.S. GAAP. Under IFRS, the subsidiary’s financial statements are restated for inflation and then translated using the current exchange rate.