- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 12. Multinational Operations
- Subject 3. Remeasurement: The Temporal Method
CFA Practice Question
Which of the following is an example of an account that would be remeasured using the current exchange rate?
B. Short-term receivables.
C. Inventories.
D. Prepaid expenses.
A. Marketable equity securities.
B. Short-term receivables.
C. Inventories.
D. Prepaid expenses.
Correct Answer: B
A short-term receivable is a monetary asset that would be remeasured using the current exchange rate. Other monetary assets, such as cash and long-term receivables, and monetary liabilities, such as short-term and long-term payables are remeasured using the current exchange rate. Most nonmonetary balance sheet accounts and related revenue, expense, gain and loss accounts are measured with the appropriate historical exchange rate. Letters A, C and D are all such examples of nonmonetary balance sheet accounts.
User Contributed Comments 8
User | Comment |
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bananabun2 | i thought marketable equity securities were monetary assets |
bmeisner | On page 176 of the reading it says that the current rate is applied to "marketable securities carried at market." I guess A is not 100% correct because it doesn't say whether they are being held as trading, available for sale or equity accounting treatment. If they are marked to market as in trading treatment then I'm pretty sure these would be carried at the current exchange rate. |
HenryQ | Equity can't be held to maturity, so must be carried at market. As A says it is marketable, so A should be measured using current rate. Agree with bmeisner. |
AusPhD | I think you might have slightly missed the point HenryQ. Bmeisner did not say the answer was wrong. If it specified that they were 'trading' securities then yes, current exchange would apply. |
tiptop | Since the answer provided specifies that these are marketable EQUITY securities, we kind of have to know that they are carried at fair value so they would be measured at the exchange rate when the fair value was established, which might not be the same as current exchange rate. So answer B is the right one. |
dblueroom | One exception about the nonmonetary assets: according to cfa institute book, marketable securities are classified as nonmonetary assets, however is remeasured at current rate. (p161). And almost all liabilities are monetary accounts including long term debt and are measured at current rate. So it doesn't have to do with whether they're trading/available for sale (for equity) or held to maturity (for debt). Please read the classification of monetary vs. nonmonetary. |
daverco | It seems to clearly state in the reading that marketable securities are considered non-monetary assets, and translated at the current rate under both the current-rate method and the temporal method. Since it is a non-monetary asset, it is only not translated at the current rate assuming one uses the monetary/non-montary approach (vs. current-rate or temporal). The question assumes one is using the monetary/non-monetary approach. This assumption should be explicitly stated (unless there is some rule saying one should assume the monetary/non-monetary approach unless stated otherwise), and it is not. |
daverco | Forget what I said in last sentence. This whole section is about temporal method. |