Foreign Currency Transaction Gains and Losses (reprise)

Foreign Currency Transaction Gains and Losses

Foreign Subsidiary's FC(*1)	Foreign Currency	Parent's PC (*2)
Translation Method (foreign subsidiary's bookkeeping currency→parent's PC(*2))	Current Rate Method	Temporal Method
Assets
Monetary (*3)	C (*4)	C
Nonmonetary; measured at current value	C	C
Nonmonetary; measured at historical cost	C	H
Liabilities
Monetary (*5)	C	C
Nonmonetary; measured at current value	C	C
Nonmonetary; NOT measured at current value (*6)	C	H
Equity
Other than retained earnings	H	H
Retained earnings	Beginning balance + Translated net income - Dividends translated at historical rate	Beginning balance + Translated net income - Dividends translated at historical rate
Revenue	A (*7)	A
Expenses
Most expenses	A	A
Expenses related to assets translated at historical exchange rate (*8)	A	H
Treatment of the translation adjustment in the parent's consolidated financial statements	Accumulated as a separate component of equity	Included as gain or loss in net income
When a foreign entity is located in a highly inflationary economy, the entity's functional currency is irrelevant in determining how to translate its foreign currency financial statements into the parent's presentation currency.	IFRS (*9) Cumulative 3-year inflation rate > 100%   or Cumulative 3-year inflation rate →(appoaching) 100%	U.S. GAAP (*10) Cumulative 3-year inflation rate > 100% ≈ (1+26%)^3-1

(*1) FC: Functional Currency
(*2) PC: Presentation Currency
(*3) e.g., cash; receivables
(*4) C: Currate Rate
(*5) e.g., account payable; accrued expenses; long-term debt; deferred income taxes
(*6) e.g., deferred revenue
(*7) A: Average rate
(*8) e.g., cost of goods sold; depreciation; amortization
(*9) (1) the financial statement of the foreign entity → restated for local inflation (2) the inflation-restated foreign currency financial statements → the parent's presentation currency
(*10) restatement for inflation is NOT allowed