When the parent currency is a foreign entity’s functional currency, its foreign currency monetary statements are remeasured to dollars using the temporal technique. All translation gains and losses resulting from the translation process are integrated in figuring out current period earnings. Specifically:
- Monetary assets and liabilities and nonmonetary assets valued at present market costs are translated making use of the rate prevailing as with the monetary statement date; other nonmonetary items and capital accounts are translated at historical rates.
- Revenues and expenses are translated utilizing average exchange rates for the period except those items associated to nonmonetary items (e.g., cost of sales and depreciation expense), which are translated employing historical rates.
- Translation gains and losses are reflected in present revenue.
