Case 16-6 Foreign Currency Translation: Various Methods Several methods of trran

Question

Case 16-6 Foreign Currency Translation: Various Methods

Several methods of trranslating foreign currency transactions or accounts are reflected in foreign currency financial statements. Among these methods are the current-noncurrent, monetary-nonmonetary, current rate, and temporal methods.

Required:

Define the temporal method of translating foreing currency financial statements. Specifically include in your answer the treatment of the following four accounts:

a. Long-term accounts receivable

b. Deferred Income

c. Inventory valued at cost

d. Long-term debt

Explanation / Answer

Answer:

Temporal method of translating foreign currency financial statements

Temporal method is one of the methods of translating a local currency to a functional currency.

Treatment of following items:

a.Long-term account receivables

Translated using the current exchange rates

b.Deferred Income

Translated using the weighted average exchange rate for the accounting period

c.Inventory valued at cost

Translated using historical exchange rates that existed when the inventory was purchased

d.Long term Debt

Translated using the current exchange rates

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