Question

Compare and contrast the temporal and the current rate method on the matter of the income statement. Which of the two seems more reasonable on this matter? (This question revolves around the concept of income (loss) recognition).

Answer 1

Current rate method is also called current translation method. In this method the foreign currency is translated in functional currency at current exchange rate.

Temporal rate method is also called as historical rate method. In this method the income statement of parent companyis foriegn subsidy from local to functional currency when local and functional currency is not the same

Comparison between contrast rate and temporal rate method is:-

The basic difference between current rate method and temporal method is that current assest and liabilities are translated at current rate. This can cause translation risk.

According to me , the current rate method is the more reasonable method because it works under the mechanism of current rate which is more dependable.