Seeing is believing!
Before you order, simply sign up for a free user account and in seconds you'll be experiencing the best in CFA exam preparation.
Basic Question 4 of 7
A US-based company has a subsidiary located in Germany. The Euro is the functional currency of the subsidiary. What exchange rate should be used to translate the following items reported in the subsidiary's year-end financial statements?
B. Historical rate - Current rate - Current rate.
C. Current rate - Historical rate - Average rate.
Inventory - Machinery - Depreciation.
A. Current rate - Current rate - Average rate.
B. Historical rate - Current rate - Current rate.
C. Current rate - Historical rate - Average rate.
User Contributed Comments 3
| User | Comment |
|---|---|
| tkorchmaros | use current exchange rate on all assets and liabilities. use the average rate to translate the income statement |
| danlan2 | Historical is used for exchanged rate, temporal method versus all-current method, historical rate is more used in temporal method. |
| jmcarr02 | Instead of the average rate applied to the depreciation you could also have used the historical rate. Both rates accepted. |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
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.