When translating foreign subsidiary financial statements,net assets are translated at the ---- rate and the components of net assets are translated at the -----rate.
A) (a) current; (b) spot
B) (a) historical; (b) current
C) (a) current; (b) historical
D) (a) spot; (b) current

Question

Quizplus · Accepted Answer

When translating foreign subsidiary financial statements, net assets are translated at the current exchange rate (i.e. the exchange rate on the balance sheet date) while the components of net assets (such as assets, liabilities, equity, and income and expenses) are translated at the historical exchange rates (i.e. the exchange rates at the time of the original transaction). Therefore, choice (a) and (d) are incorrect because they mix up the rates for net assets and its components. Choice (b) is also incorrect because historical rates should be used for components, not current rates.

When Translating Foreign Subsidiary Financial Statements,net Assets Are Translated at the ----