Under the temporal approach,which exchange rate is used to translate most of the income statement items?
A) Current exchange rate
B) Historical exchange rate
C) Average exchange rate for the period covered by the income statement.
D) The firm has the right to choose any exchange rate that existed during the period covered by the income statement.

Question

Quizplus · Accepted Answer

Under the temporal approach, the historical exchange rate is used for translating balance sheet accounts, while the average exchange rate for the period covered by the income statement is used for translating most of the income statement items. This is because the average exchange rate for the period better reflects the economic conditions under which the transactions occurred. Therefore, choice C is the best option. The firm does not have the right to choose any exchange rate that existed during the period covered by the income statement unless there is a specific reason or regulation to do so.

Under the Temporal Approach,which Exchange Rate Is Used to Translate