Question #118
Reading: Reading 10 Multinational Operations
PDF File: Reading 10 Multinational Operations.pdf
Page: 64
Status: Unattempted
Question
Which of the following statements regarding the effects of translation on financial statement items/ratios is most accurate?
Answer Choices:
A. Fixed assets are relatively overstated under the temporal method compared to the local currency if the local currency has appreciated
B. Leverage is higher under the current rate method as compared to under the local currency
C. Depreciation in the reporting currency under the current rate method is higher than under the temporal method if the local currency has appreciated
Explanation
Fixed assets are relatively understated under the temporal method if the local currency
appreciates as they are translated at the weaker historic rate. The leverage ratio will be
unaltered under the current rate method as it is a pure balance sheet ratio and hence all
translated at the current rate.