In short
The current rate method translates a foreign entity's statements from its functional currency into the reporting currency: assets and liabilities at the balance sheet date rate, and income and expenses at the rates when they occurred (or a weighted average).
Key takeaways
- Equity accounts use historical rates.
- The resulting difference is the translation adjustment, reported in other comprehensive income.
- It applies when the functional currency is the foreign currency; the temporal method applies when remeasuring into the functional currency.
Where it's tested
BAR: Foreign Currency Translation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A foreign subsidiary maintains its books in its local currency, which is also determined to be its functional currency. How is the resulting adjustment from converting to the parent's reporting currency treated?