ACC545 Chapter 13 Baker 10e

Temporal vs. Current Rate updated 8/5/13, Page 1 of 1

Temporal Method vs. Current Rate Method

Totally depends on identifying Functional Currency:

Functional Currency: currency used to maintain financial records of foreign subsidiary.
Generally, if the subsidiary has independent operations and is not in a highly inflationary economy,
it is the currency of that country (, , etc).
IF Functional Currency is the foreign currency, then use the Current Rate Method where
balance sheet is translated using end of year rates and gains/losses on translation are deferred to
Stockholders Equity (Accumulated Other Comprehensive Income)
IF Functional Currency is the U.S $, then use the Temporal Method where balance sheet is
translated using combination of historical rates and current rates and gains/losses on translation are
recognized in Net Income.