cfa 2 financial analysis

Flash Card 1: Current Rate Method

Front:

When is the current rate method used?

Back:

Used when the subsidiary’s functional currency is its local currency.

Flash Card 2: Current Rate Method – Rates

Front:

How are accounts translated under the current rate method?

Back:

• Assets & liabilities → current rate

• Revenues & expenses → average rate

• Common stock → historical rate

• Dividends → rate at declaration

Flash Card 3: Current Rate Method – Adjustment

Front:

Where does the translation adjustment go under the current rate method?

Back:

→ Equity (OCI)

→ Does not affect net income

Flash Card 4: Temporal Method

Front:

When is the temporal method used?

Back:

Used when the subsidiary’s functional currency is the parent’s currency.

Flash Card 5: Temporal Method – Rates

Front:

How are accounts translated under the temporal method?

Back:

• Monetary assets & liabilities → current rate

• Nonmonetary assets (inventory, PPE) → historical rate

• Revenues & most expenses → average rate

• COGS & depreciation → historical rate

Flash Card 6: Temporal Method – Adjustment

Front:

Where does the translation adjustment go under the temporal method?

Back:

→ Income statement

→ Affects net income

Flash Card 7: Key Difference

Front:

What is the key difference between the current rate and temporal methods?

Back:

• Current rate: adjustment → equity

• Temporal: adjustment → income