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How are these two calculated? The textbook seems to calculate it backwards just to make the BS and IS balance. Also, if the foreign currency is the functional currency, that means the current method is used. If the foreign currency depreciates, that means there is a negative translation adjustment and vice versa.
Is this always the case? Financial Exam Help In practice, many businesses use the average or sometimes weighted average if monthly expenditure levels and FX rates vary to the extent that there could be a material difference in the translated balances instead of actual FX rate in effect on the transaction date.
The balance sheet is translated at the spot rate current method to simply to reflect the presentation or functional currency equivalent value of those balance sheet items. Under the current method to check the effect of a depreciation or appreciation in the foreign currency, you have to calculate your net asset position. I wrote an article on the two methods that may be of some use: Translation adjustment is used on the balance sheet when using the current method.
Is there a intuitive reason why this is the way it is? First, remember that OCI is typically used for gains or losses that are not realized. Skip to main content. Be prepared with Kaplan Schweser. Study for Success in Smagician Nov 30th, 7: Simplify the complicated side; don't complify the simplicated side. Anand Singh Dec 9th, 1: Accountant try to make everything overcomplicated.
Current Mehtod used when funtional not equal presentation. Temporal use when functional and presentation equal. Smagician Dec 11th, Codtrawler87 Nov 29th, 8: