Multinationals - Translation with three different currencies

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rexthedog

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Hi,
There is a question on a Schweser Mock which suggests that Dollar is the presentation currency, Rho is the functional currency and that some of the local companies accounts receivable are denominated in a third currency, “Del”.
Which currency method do we use?
It says we use the current rate for translation with any gains or losses reflected in the income statement? Can someone please explain this…. how do we know to choose current, I was unclear on why gains and losses go through Income Statement when translaton gains for Current refer to CTA adjustments on the balance sheet and not the PnL.
Schweser Exam book 1 - exam 2, Q 95 of morning paper. (P116)
Thanks
 
The method to use would be the temporal method.
Under this method monetary assets and liabilities are translated using current rates and the net gain/loss is shown on the IS.
 
This one got me too. It probably could have been worded better. The bottom line is, current vs temporal doesn’t come into play for the question. It’s about exposure of the receivable.
 
So because it is AR and a Monetary asset it would be translated under the same rate under either the current or the temporal right?
What makes you use the temporal if the functional does not equal the presentation?
 
AR is a non-monetary asset and it is translated at historical rate. Without access to the question I think tI would confuse you more. See JayWill comment.
 
If the local, functional, and presentational currencies are all different, you’d use the:
  • Temporal method to remeasure from the local currency to the functional currency
  • Current rate method to translate from the functional currency to the presentational currency
 
I answered this in another thread and I will just write it again here. The local sub has A/R denominated in a third currency because it had transactions with a foreign company (probably export sale). Transaction exposure is different from translation exposure, so neither the current rate method nor the temporal method is used here. In this case, the assets are translated at the current exchange rate and the gains/losses are reported in the income statement.
 
Thanks all. clears it up.
@Krok, why is A/R a non-monetery asset? I would have thought the opposite
 
rexthedog wrote:
Thanks all. clears it up.
@Krok, why is A/R a non-monetery asset? I would have thought the opposite
Click to expand...
Yes you are right. Just checked the curriculum and it is a monetary asset. Apparently t there are cases when a non-monetary asset (whenever measured at current value) is also translated at current rate… Need to revisit that chapter.
 
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