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.