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• W1522784251 abstract "INTRODUCTION TO TRANSLATION METHODS There are four translation methods generally used: namely, the Current rate method, Current/non-current method, Monetary/non-monetary method, and the Temporal method. Under the current rate method, all balance sheet items (except owners' equity) are translated using the current exchange rate on the balance date. The owners' equity (common stock and additional paid-in capital accounts) is translated at historical exchange rate on the date at which the stock was issued (Saudagaran, 2004, p.65). The other methods use a combination of current and historical rates in the translations. The temporal method uses the measurement basis of the asset and liability accounts to select the translation exchange rate. Accordingly, monetary assets and liabilities are translated using the current exchange rate. Non-monetary assets such as inventories and fixed assets are translated at current rate if they are carried in the books at current values, otherwise at historical exchange rate if these assets are carried in the books at historical cost. Because of the flexibility afforded by the temporal method, this was the only method permitted under Financial Accounting Standard Board (FASB) Pronouncement No. 8 or SFAS 8. Translation accounting in the United States has evolved over time in response to increasing complexity of multinational operation. Prior to 1965, the translation used the currentnon current method recognizing net translation losses in the income statement, while net translation gains as deferred account. A rather controversial standard was issued as SFAS 8 in 1975. It required the use of temporal method with the translation gains and losses recognized in income during the period of the rate change. The criticism was its yo-yo effect on the reported income. In 1981, SFAS 52 was issued. It recognized that the parent company and the foreign subsidiary perspectives are both legitimate reporting frameworks. When currency in which foreign entity's records are kept is the local currency, the financial statements are translated to U.S. dollars under the current rate method: assets and liabilities are translated using the current rate prevailing at the balance sheet date, and revenues and expenses at the weighted average rate, with resulting gains and losses shown as a separate component of the equity. When the parent's currency is the functional currency, the foreign subsidiary's financial statements are re-measured to the U.S. dollars using the temporal method, and translation gains and losses are included in the current-period income. Monetary assets and liabilities and non-monetary assets valued at current market prices are translated using the rate prevailing on the financial statement date while nonmonetary items and capital accounts are translated at historical rates. Revenues and expenses are translated using average exchange rates except cost of goods sold and depreciation that are translated at historical rates. Where there are more than one distinct and separable subsidiary, each may be considered a separate unit with its own functional currency. Once the functional currency has been determined, that currency designation must be used consistently unless changes in the economic circumstances clearly indicate that the functional currency had changed. SFAS 52 introduced the use of functional currency. The choice of the functional currency affects the treatment of translation gains and losses. To be sure that the choice is not arbitrary, SFAS 52 set the factors to be considered in the choice of which functional currency to use. One would choose the foreign local currency as the functional currency if a foreign subsidiary's operation is basically self-contained and integrated within the foreign country with infrequent inter-company transactions with the parent company; and cash flows are primarily in the local currency and do not impact parent's cash flows, sales price are largely unresponsive to exchange rate changes, sales market is largely in the host country and denominated in the local currency, expenses incurred primarily in the local environment, and financing is primarily denominated in local currency and serviced by local operation. …" @default.
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• W1522784251 date "2011-04-01" @default.
• W1522784251 modified "2023-09-23" @default.
• W1522784251 title "Consolidation of Foreign Subsidiaries: Revisiting Sfas 52" @default.
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