US Corp has a subsidiary in Argentina. Due to high inflation, the subsidiary's functional currency is deemed to be the US Dollar (Reporting Currency). Which method must be used to convert the financial statements, and where does the resulting adjustment go?

Answer options:

Remeasurement (Temporal Method); Gain/Loss to Net Income.

Translation (Current Rate Method); Gain/Loss to OCI.

Remeasurement (Temporal Method); Gain/Loss to OCI.

Translation (Current Rate Method); Gain/Loss to Net Income.

How to approach this question

Identify Functional Currency. If Reporting Currency -> Temporal Method -> Income. If Foreign Currency -> Current Rate Method -> OCI.

Full Answer

A.Remeasurement (Temporal Method); Gain/Loss to Net Income.✓ Correct

When the functional currency is the reporting currency (e.g., highly inflationary environment), the financial statements are 'remeasured' into US Dollars using the Temporal Method. The resulting gain or loss is recognized in Net Income.

Common mistakes

Confusing Translation (OCI) with Remeasurement (Income).

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