CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Which of the following statements about the current rate method is true?
A. All balance sheet items are translated at the current exchange rate.
B. If a firm's foreign-currency denominated assets exceed its liabilities a devaluation (revaluation) results in a loss (gain).
C. Nonmonetary items (fixed assets and long-term investments) are translated at historical rates.
Explanation: Nonmonetary items arise in the temporal method, not the current rate method. Under the current rate method, fixed assets are translated at current exchange rates.

User Contributed Comments 5

User Comment
sireklove But A is correct, no? All balance sheet items are translated at the current exchange rate under the all-current method. The answer for this one isn't very clear for me. (Nonmonetary items "arise" in the temporal method? - "arise" is unclear.)
yesficom Equity is not translated at current but historical
AusPhD A correct one, equity is recorded at historical cost, as yesficom mentioned.
mrpman Wait, before I show my stupidity..... I have got one question. Regarding B, if your foreign currency denominated assets exceed your liabilities, wouldn't you have a gain? I know this gain in current rate goes to OCI on balance sheet, and in temporal method it goes straight to the income statement, but when assets exceed liab, shouldn't this be a gain?
challenge11 They must mean a devaluation of the presentation currency. Easily subject to misinterpretation!
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