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Basic Question 4 of 6
Which of the following is an example of an account that would be remeasured using the current exchange rate?
B. Short-term receivables.
C. Inventories.
D. Prepaid expenses.
A. Marketable equity securities.
B. Short-term receivables.
C. Inventories.
D. Prepaid expenses.
User Contributed Comments 8
| User | Comment |
|---|---|
| bananabun2 | i thought marketable equity securities were monetary assets |
| bmeisner | On page 176 of the reading it says that the current rate is applied to "marketable securities carried at market." I guess A is not 100% correct because it doesn't say whether they are being held as trading, available for sale or equity accounting treatment. If they are marked to market as in trading treatment then I'm pretty sure these would be carried at the current exchange rate. |
| HenryQ | Equity can't be held to maturity, so must be carried at market. As A says it is marketable, so A should be measured using current rate. Agree with bmeisner. |
| AusPhD | I think you might have slightly missed the point HenryQ. Bmeisner did not say the answer was wrong. If it specified that they were 'trading' securities then yes, current exchange would apply. |
| tiptop | Since the answer provided specifies that these are marketable EQUITY securities, we kind of have to know that they are carried at fair value so they would be measured at the exchange rate when the fair value was established, which might not be the same as current exchange rate. So answer B is the right one. |
| dblueroom | One exception about the nonmonetary assets: according to cfa institute book, marketable securities are classified as nonmonetary assets, however is remeasured at current rate. (p161). And almost all liabilities are monetary accounts including long term debt and are measured at current rate. So it doesn't have to do with whether they're trading/available for sale (for equity) or held to maturity (for debt). Please read the classification of monetary vs. nonmonetary. |
| daverco | It seems to clearly state in the reading that marketable securities are considered non-monetary assets, and translated at the current rate under both the current-rate method and the temporal method. Since it is a non-monetary asset, it is only not translated at the current rate assuming one uses the monetary/non-montary approach (vs. current-rate or temporal). The question assumes one is using the monetary/non-monetary approach. This assumption should be explicitly stated (unless there is some rule saying one should assume the monetary/non-monetary approach unless stated otherwise), and it is not. |
| daverco | Forget what I said in last sentence. This whole section is about temporal method. |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
compare the current rate method and the temporal method, evaluate how each affects the parent company's balance sheet and income statement, and determine which method is appropriate in various scenarios;
calculate the translation effects and evaluate the translation of a subsidiary's balance sheet and income statement into the parent company's presentation currency;
CFA® 2025 Level II Curriculum, Volume 2, Module 12.