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Subject 4. Translation: The All-Current Method PDF Download
Translation refers to conversion of the functional currency data of a subsidiary into the presentation currency. The all-current method is used for relatively independent entities that operate primarily in local markets. Products are purchased and paid for in local currencies. Sales are primarily in the local currency, although the entity may engage in some exporting.

  • Use current exchange rates as of the balance sheet date to translate all assets and liabilities carried at historical cost. Therefore, all exchange rate holding gains and losses, realized and unrealized, are recognized. However, they are not reported in the income statement but flow into the cumulative translation adjustment account in stockholders' equity.

  • Use historical (or average) exchange rates to translate equity accounts.

  • Use historical (or average) exchange rates to translate income statement accounts.


News Co. is a wholly owned foreign sub of ATG Corporation. News Co.'s transactions and financial statements are denominated in the local (functional) currency, the Pater (PT). Using the following information, translate their statements into US$.

  • News Co.'s common stock was issued in 1992 when the exchange rate was $1.00 = 1.20 PT.
  • Fixed assets were acquired in 1993 when the exchange rate was $1.00 = 1.10 PT.
  • As of Jan. 1, 2004, the R/E balance was translated at $350,000.
  • Inventory was acquired evenly throughout the year of 2004.
  • The Dec. 31, 2004 translation adjustment had a debit balance of $69,841.
  • Dividends were declared on March 1, 2004, and equipment was sold on October 1, 2004.

The following exchange rates were in effect during the year:

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® 2023 Level II Curriculum, Volume 2, Module 13

User Contributed Comments 13

User Comment
krhoades Assets & Liabilities - Current
Equity - Historical
Sales & Expenses - Average
Dividends - Historical
yly14 use historical rates when specific transactions can be identified efficiently. Only applicable to gains/losses?
moresimple 1. how's that $41,511 come by as quoted at the second last line of bal. sheet? i.e. $41,511 + 69,841 = 111,352

2. some texts quote as dividends are translated at rate that applied when they're "paid"(not declared).
allanzhu how can we get $41,511
epiziL2 The translation adjustment prior to curent translation in posted in comprehensive income into Equity, so a debit balance here means it is a loss. Given the current translation adjustment,it has reassessed the whole subsidiary again to realise this debit should be 111352 instead of 69841. That means the company has rather increase in debit balance by 41511 which is quite bad!! HENCE;
Innitial debit(remember debit in Equity means -ve) = (69841)
Current Debit(Loss)= -(111352)
Additional Debit(loss)= (41511)
rhardin I still don't understand the translation adjustment. I understand the point of it and why it is a debit, but I don't understand how to get the numbers. What are the calculations? Thanks!
VenkatB Cash 35000 0.98 35714
Rec 125000 0.98 127551
Inve 78000 0.98 79592
Fixd Assets (net) 368000 0.98 375510
Total Assets 606000 0.98 618367

Liab 190000 0.98 193878
CS 150000 1.2 125000
R/E 266000 410841
Translation Adj 0 -111351 (Calculate this ; Total Assets - Liab - CS - R/E = Trans Adj); this adjustments makes Assets = Total Liab+Equity match. Then substract 69841 to get the additional Transaction Adj of 41511

total lib/equity 606000 618367
rhardin Ah I understand now, thank you VenkatB!!
weiw I don't get the translation of fixed assets and of inventory. It is said the inventory is required evenly during the year, we need use the weighted average rate to translate, right? Anyone?
Oksanata A=L+E
Oksanata The Dec.31, 2004 TR.ADJUSTMENT had a debit balance of $69'841. This means at the end of the year this account should be balanced with 111'352-69'841=41'511
davcer Yly14, in this case you know that equipamiento Washington sold in october so you can identify the x rate
sanyukta The Dec. 31, 2004 translation adjustment had a debit balance of $69,841
I think is should be Jan1, 2004, as the last line indicates it is the bal. of beginning of the year.
It's the cummulative translation adj. a/c.
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