Under the Current Rate Method, Describe How the Various Balance

question 22

Essay

Under the current rate method, describe how the various balance sheet accounts are translated (including the equity accounts) and how this translation affects the computation of various ratios (such as debt to equity or the current ratio).In particular, discuss whether or not the ratios will change when computed in local currencies and compared to their calculations (after translation) using the parent's currency.

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Definitions:

LIFO method

Last In, First Out; an inventory valuation method where the most recently produced or purchased items are the first to be expensed.

Periodic system

An inventory valuation method where updates to inventory records are made on a periodic basis, usually at the end of an accounting period.

Beginning inventory

The value of a company's inventory at the start of an accounting period.

Perpetual inventory system

An inventory system that keeps continuous, real-time records of goods bought and sold, updating inventory accounts without physical counts.