土豆妮

Dave Iverson, CFA, is analyzing the recently released financial statement of Global Corp., a large multinational manufacturing company with production facilities across Europe and Southeast Asia. The company’s choice of functional currency is not disclosed, but Iverson does notice that Global Corp. does not have any cumulative translation adjustments (CTA) on its balance sheet. Which of the following statements is most accurate based upon Iverson’s observation?

A) The all-current method of foreign currency translation is used exclusively.

B) The temporal method of foreign currency translation is used for at least some of its subsidiaries.

C) The temporal method of foreign currency translation is used exclusively.

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The choice of functional currency is the determining factor as to which method of foreign currency translation is utilized. If no CTA appears on the balance sheet, then the parent currency must be the functional currency for all of the company’s subsidiaries and only the temporal method is used.

土豆妮

Which of the following currency translation methods is most appropriate in a hyperinflationary economy? The:

A) current/non-current method since current assets and liabilities are translated at the current exchange rate.

B) all-current method since the translation gain or loss is shown on the income statement.

C) temporal method because all non-monetary accounts are translated at the historical rate.

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Temporal is most appropriate because the value of non-monetary assets and liabilities is translated at the historical rate.

土豆妮

Which of the following statements regarding foreign currency disclosures in the footnotes to financial statements is most accurate?

A) A multinational firm with small liability balances generally has minimal foreign currency exposure on its balance sheet.

B) If the parent currency is the functional currency, the temporal method is applied and exposure is equal to net monetary assets.

C) All U.S.-based multinational firms must disclose the accounting method used for foreign currency translation in order to be in compliance with GAAP standards.

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The basis for using the all current 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.

The choice of functional currency is the determining factor as to which method of foreign currency translation is utilized. Therefore, when the parent currency is the functional currency, the temporal method must be used. The choice of methods is up to management’s discretion.

luqian55

thanks