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What is the concept of current rate method of translation and temporal method of translation? How does balance sheet exposure differ under these two methods?
The 2010 financial statement of Child Co. Inc (Mexico), a subsidiary of Parent Co. Inc (United States), reveals the following information:
Beginning Inventory
Peso 100,000
Purchases
Peso 500,000
Ending Inventory
Peso 150,000
COGS
Peso 450,000
US dollar exchange rate for 1 Peso:
January 1, 2010
$0.45
Average, 2010
$0.42
December 31, 2010
$0.38

The beginning inventory was acquired when the exchange rate was $0.50 last quarter of 2009; ending inventory was acquired when the exchange rate was $0.40 last quarter of 2010.

Report amounts of ending inventory and cost of goods sold to be included in the consolidated financial statements under (1) Current rate method and (2) Temporal method.

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