ExpertMedium1 markMultiple Choice
CPA · Question 38 · Area 3: Technical Accounting and Reporting
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?
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:
A.
Current Rate Method
B.
Remeasurement (Temporal Method)
C.
Retrospective Restatement
D.
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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