CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Which of the following statements about the temporal method is true?
A. All balance sheet items are translated at the current exchange rate.
B. Income statement items are generally translated at an average rate for the period. COGS and depreciation related to balance sheet items carried at historical cost are translated at historical rates.
C. If a firm's foreign-currency denominated assets exceed its liabilities a devaluation (revaluation) results in a loss (gain).
Explanation: Since inventories and depreciable assets are carried at historical exchange rates under the temporal method, costs arising from these assets (e.g., COGS and depreciation expense) are also reported at historical exchange rates.

User Contributed Comments 4

User Comment
ThePessimist Wouldn't the last statement be correct too? "Foreign-currency denominated" suggests monetary assets. A net monetary asset position being devalued causes a translation loss, which is included in net income under the temporal method.
volkovv "Foreign-currency denominated assets" could also include non-monetary assets, so you can have a case where(Net Assests - Net Liabilities) is positive but (Net Monetary Assets - Net Monetary Liabilities) is negative. And since the question asks about temporal method and assuming my assumption holds that last statement would be false.
tom1980 IF the assests are non-monetary assets,then, no gains all loss should be recognized
sunday128 A & B is wrong because under temporal method, it should be remeasured rather than translated?
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