Question 7Which of the following statements relating to foreign currency translation is false? The current rate method is used when a foreign operation has its own functional currency and it is necessary to translate amounts from the functional currency to the reporting currency used in the parent entity's consolidated financial statements. The application of the current rate method gives rise to cumulative translation adjustments which are reported as part of other comprehensive income. If a foreign entity has a recording currency that is different than its functional currency, it will be necessary to restate the enity's financial statements from the recording currency to the applicable functional currency and this will give rise to restate gains and losses recognized in the income statement. A foreign entity that operates in a country that has a high rate of inflation will have to translate its financial statements into the parent entity's reporting currency using the current rate method.

Foreign Currency Translation While making the foreign currency Translation whether can be used the method current Rate method or Temporal Method. In the Current Rate method which can be calculate the foreign currency translation into the current market rate which are prevailed at the time of exchange translation. Where as in the Temporal method which can be used for historical cost basis in the foreign currency translation as well. Correct Answer = Statement 4 is False = A foreign entity that operates in a country that has a high rate of inflation will have to translate its financial statements into the parent entity's reporting currency using the current rate method. Explanation According to the foreign currency translation there are different method which are applicable like Current Rate Method and Temporal Method. According to current Rate method the exchange of currency translation which can be follow the method of current market exchange rate which are prevailed in the market as well. Where as in the Temporal Method it will be calculated by using the historical cost basis. According to this statement a foreign entity that operates in a country that has the chance of high rate of inflation will have to use the foreign translation into the financial statement the parent company using the method of Temporal method which is most convenient in this type as well. It is not convenient to use the current rate method at the time of high rate of inflation because of the current rate method which follow the rules of current market exchange rate which can be adversely effected into in the case of high rate of Inflation. Hence it is better to use the Temporal Method in this regard as well. Hence Correct Answer = A foreign entity that operates in a country that has a high rate of inflation will have to translate its financial statements into the parent entity's reporting currency using the current rate method.

Answered: Which of the following statements…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 7

Which of the following statements relating to foreign currency translation is false?

		The current rate method is used when a foreign operation has its own functional currency and it is necessary to translate amounts from the functional currency to the reporting currency used in the parent entity's consolidated financial statements.
		The application of the current rate method gives rise to cumulative translation adjustments which are reported as part of other comprehensive income.
		If a foreign entity has a recording currency that is different than its functional currency, it will be necessary to restate the enity's financial statements from the recording currency to the applicable functional currency and this will give rise to restate gains and losses recognized in the income statement.
		A foreign entity that operates in a country that has a high rate of inflation will have to translate its financial statements into the parent entity's reporting currency using the current rate method.

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