Chapter 9 Summary

1. Foreign operations functional currency: if different from parent, then use parent’s functional currency
in consolidated financial statements

 Temporal method:
o spot rate for monetary assets and liabilities
o spot rate for nonmonetary assets and liabilities reported at FV
o historical rate for nonmonetary assets and liabilities reported at historical cost
 Current-rate method: ALL assets and liabilities are translated at spot rate, only shareholder
equity accounts are translated at historical rate.

2. Types of exposure to foreign currency fluctuation:

 Accounting: focus on past events,

 Economic: focus on future FV of cash flows
 Translation gains/losses:
o Immediate recognition
o Limited recognition
o Deferred recognition
 Translation methods:
o Temporal method: gains and losses on monetary items (and fair value non-monetary)
are reported to net earnings
o Current-rate method: gains and losses are reported in OCI and accumulated in separate
component of equity

3. Exhibit 9-4
4. Exhibit 9-8: example of temporal method (p473)

5. Exhibit 9-10: summary of different methods (p476)