Page 60 - FINAL CFA II SLIDES JUNE 2019 DAY 5.2

Applying the Current Rate Method
• All IS accounts are translated at the average rate. READING 16: MULTINATIONAL OPERATIONS
• All BS accounts are translated at the current rate except for common stock,
which is at the historical (actual) rate.
• Dividends translated at the rate that applied when they were declared. MODULE 16.4: CURRENT RATE METHOD
• Translation gain or loss is reported in equity as a part of the cumulative
translation adjustment (CTA).

The CTA is an accumulated balance of all of the translation gains and losses at a point in
time. In order to compute the translation gain or loss for a specific period, we need the
change in the CTA for the period.

In our example, if the beginning balance of the CTA was $20 and the ending balance
(plug) was $50, the translation gain for the period was $30.

Under the temporal method, no CTA is reported in shareholders’ equity. Instead, the
remeasurement gain or loss is recognized in the income statement. The remeasurement
gain or loss is also a plug figure and is simply the difference in the earnings before the
gain or loss and the earnings after the gain or loss.
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Calculating the Translation/Remeasurement Gain or Loss
The CTA is simply a “plug” figure that forces the basic accounting
equation (A = L + E) to balance.

EXAMPLE: Calculating the ending balance of the CTA under
the current rate method. Given the following balance sheet
data, calculate the ending balance of the CTA.

Ending retained earnings is: $200($175 beginning retained earnings
+ $50 net income − $25 dividends paid).

Force CTA of $50 ($1,000 assets − $600 liabilities − $150 common stock −
$200 ending retained earnings).