CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Assume that on April 1 a non-US based subsidiary buys marketable securities and inventories on its balance sheet valued in the local currency (LC) at 100,000 LC each that are both remaining as of December 31. The relevant exchange rates are as follows:

January 1: $0.15=1LC
April 1: $0.16=1LC
December 31: $0.19=1 LC

Assume the LC is the subsidiary's functional currency. On a consolidated balance sheet as of December 31, what balances are reported?
A. Securities = $15,000 and Inventory = $15,000.
B. Securities = $19,000 and Inventory = $15,000.
C. Securities = $19,000 and Inventory = $19,000.
Explanation: The current rate method is required since the local currency of the functional currency. As a result, current rates must be used to translate the assets into their $US equivalent.

User Contributed Comments 4

User Comment
danlan2 Local currency is the functional currency, so current rate method is used. If Us $ is the functional currency, temporal method is used, and the answer will be C.
ThePessimist No, if the US$ were the functional currency, and the temporal method were used, then inventory would be carried at historical $ cost: $16,000. The answer is correct only because the current rate method is used.
volkovv I second ThePessimist.
davcer under temporal, non monetary assets at historic cost only monetary at current
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