Equity translated @ current rate under current method method

dandman

I got a question wrong in a schweser test and the answer explained "Under the current rate method, the equity accounts as a whole are translated at the current rate"

I know everything other than retained earnings is translated at the historical rate. Is the statement above justified due to retained earnings calculations, and if so, is that always the case?

MiniMe7

The CTA does it for me.

FinancialAnaly

I don't see it that way, but it is probably just semantics. The reason the balance sheet stays balanced under the current rate method is that you add in a translation adjustment to equity to compensate for the fact that the individual components of equity are not translated at the current rate, like assets and liabilities are. But this is an ad-hoc adjustment to equity, not a translation.

liquidity

The trick here is to remember that under the current rate method, the translation g/l is a component of equity to keep the accounts balanced. I think the Schweser answer is misleading.

Swanand

janakisri Wrote:
-------------------------------------------------------
> I hear you man.
>
> I'd have got that one wrong too.Never would have
> put 2-and-2 together .
>
> E=A-L , so use current rate . OK. So how about
> common stock issued at a historical rate? Is that
> not true then?
>
> Kind of hit-or-miss on some questions for me.
> Maybe I'm too literal

It is true, your common stock is translated at the current rate and your RE is mixed. CTA is your plug to force the balance sheet to balance.

NO EXCUSES

neil1234

Sorry, equity is NOT translated at current rate under the current rate method. See the (immensely helpful) table on page 177 of CFAI v. 2. Translation of equity is, in fact, the same under the current and temporal methods.

defour44

Thanks, guess I'm getting burned out and focusing too much on details (common stock at historical) and forgetting the easy big picture stuff.

chaojimali

I hear you man.

I'd have got that one wrong too.Never would have put 2-and-2 together .

E=A-L , so use current rate . OK. So how about common stock issued at a historical rate? Is that not true then?

Kind of hit-or-miss on some questions for me. Maybe I'm too literal

comp_sci_kid

Yes in the current rate method assets and liabilities are translated at current rate.

So E = A - L

That is why equity is said to be translated at current rate.