When the functional currency of a subsidiary is different from the parent firm's reporting currency, it should use _____ to translate financial statements.

Question

Quizplus · Accepted Answer

The current rate method is used when the functional currency of a subsidiary is different from the parent firm's reporting currency. This method involves translating all assets and liabilities at the current exchange rate and translating income statement items at the average exchange rate for the period. This method is considered the most appropriate for multinational corporations, as it reflects economic conditions prevailing during the current accounting period. The temporal method and forward rate method may also be used in certain circumstances, but the current rate method is generally considered the most appropriate. The swap rate method is not a commonly used method for translating financial statements.

When the Functional Currency of a Subsidiary Is Different from the Parent