A US company has a subsidiary in Argentina. Due to high inflation, the US dollar is determined to be the functional currency (Remeasurement/Temporal Method). How should the subsidiary's Inventory and Long-Term Debt be remeasured?

Answer options:

Inventory: Current Rate; Debt: Current Rate

Inventory: Historical Rate; Debt: Current Rate

Inventory: Historical Rate; Debt: Historical Rate

Inventory: Current Rate; Debt: Historical Rate

How to approach this question

Temporal Method: Is the asset/liability monetary (fixed $ amount)? Yes -> Current Rate. No (Physical/Intangible) -> Historical Rate.

Full Answer

B.Inventory: Historical Rate; Debt: Current Rate✓ Correct

Under the Temporal Method (used when functional currency is reporting currency), monetary items like Debt are remeasured at the Current Rate. Non-monetary items carried at historical cost, like Inventory and PP&E, are remeasured at the Historical Rate.

Common mistakes

Treating inventory as monetary; using current rate for everything.

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