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Basic Question 6 of 6
Which of the following statements is (are) true with respect to the steps that are undertaken under the temporal method?
II. All nonmonetary items on the balance sheet are remeasured using the current exchange rates.
III. The average exchange rate throughout the reporting period must be used in order to remeasure sales and expense items.
IV. Depreciation is remeasured using the exchange rate that existed at the beginning of the reporting period.
I. The balance sheet has to be remeasured first before the income statement can be remeasured.
II. All nonmonetary items on the balance sheet are remeasured using the current exchange rates.
III. The average exchange rate throughout the reporting period must be used in order to remeasure sales and expense items.
IV. Depreciation is remeasured using the exchange rate that existed at the beginning of the reporting period.
User Contributed Comments 7
| User | Comment |
|---|---|
| creativemny | I do not agree. The word "must" in III makes it incorrect. The exchange rate on the date of the transaction should be used if transactions do not flow evenly throughout the year. |
| AusPhD | I see your point, but in reality this assumption would be made. |
| dblueroom | I have no prob with avg rate, however, expense shouldn't include those associated with nonmonetary accounts, such as depr. isn't it also an expense account? cost of good sold -historical rate as well. |
| mahart | dblueroom: COGS is NOT an expense account. Examples of expenses are like commissions, admin expense, etc. |
| rhardin | And depreciation EXPENSE, which would be remeasured at historical rate. So the word "must" makes III incorrect. |
| charlie | depreciation is a cost, not an expense. |
| davidt876 | lol @ charlie.. m8.. wot? mahart you are completely wrong. check google for clarification that COGS is most certainly considered an expense. rhardin i think you're right, and the use of 'must' in III, and the general reference to all "expense items" makes it false. |
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Learning Outcome Statements
compare the current rate method and the temporal method, evaluate how each affects the parent company's balance sheet and income statement, and determine which method is appropriate in various scenarios;
calculate the translation effects and evaluate the translation of a subsidiary's balance sheet and income statement into the parent company's presentation currency;
CFA® 2025 Level II Curriculum, Volume 2, Module 12.