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What currency exchange rate would be used to translate the asset and liability balances of a...

What currency exchange rate would be used to translate the asset and liability balances of a foreign subsidiary? What is the justification for using this exchange rate?

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Answer #1

The currency exchange rate to be used for translation of asset and liability balances of a foreign subsidiary would be the rate as at the balance sheet date.

The justification behind this is to determine how much the assets and liabilities (net worth) of the company would fetch if they were disposed off on the balance sheet date (hypothetically). Since spot rate is used it means that the assets /liabilites if sold off on that date would fetch an amount obtained using such spot rate.

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