Financial Statement Analysis
 

Foreign Currency Translation

Temporal method requires that all assets and liabilities are translated at the exchange rate at the time the asset or liability was incurred. Only monetary assets and liabilities are translated using the current rate.

  Monetary:               Current rate
  Non-Monetary:           Historical rate
  Common Stock/Dividends: Historical rate
  COGS/depr/ammort:       Historical rate
  All other revenues:     Average rate
  Remeasurement gains/losses go onto the income statement


All Current:

  All Assets/liabilities:   Current rate
  Common Stock/Dividends:   Historical rate
  Revenues/Expenses:        Average rate
  Gains and losses are on the "CTA" account - a plug figure on the balance sheet


Bottom Line:

The difference between the two methods has to do with non-monetary assets and COGS/depr/ammortization. All other things are the same. These two things are translated at the historical rate in the temporal method.