A company changes its functional currency from the Local Currency to the Reporting Currency (US Dollar) because the local economy has become highly inflationary (cumulative inflation > 100% over 3 years). Which method should be used for translation going forward?

Answer options:

Current Rate Method

Remeasurement (Temporal Method)

Retrospective Restatement

Fair Value Method

How to approach this question

Rule: High Inflation (>100% in 3 yrs) -> Must use Reporting Currency (USD) as Functional. Functional = Reporting -> Remeasurement Method.

Full Answer

B.Remeasurement (Temporal Method)✓ Correct

ASC 830 requires that in a highly inflationary economy, the financial statements must be remeasured as if the functional currency were the reporting currency (USD).

Common mistakes

Continuing to use Current Rate method.

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