Temporal method

The temporal method is a modified version of the monetary/non-monetary method. The only difference is that,

· Under temporal method inventory is usually translated at the historical rate but it can be translated at the current rate if the inventory is shown in the balance sheet at market values. In the monetary/non-monetary method inventory items is always translated at the historical rate.

(Income statement items are normally translated at an average exchange rate for the period. However, cost of goods sold & depreciation are translated at historical rates.)

Current/Non-Current method

The current/non-current method is perhaps the oldest approach. No longer allowable under generally accepted accounting practices in the US. Its popularity gradually waned as other methods were found to give more meaningful results. Under the current/non-current method,

· All current assets & current liabilities of foreign affiliates are translated into the home currency at the current exchange rate while non-current assets & non-current liabilities are translated at historical rates.

· In the balance sheet, exposure to gains or losses from fluctuating currency values is determined by the net of current assets less current liabilities. Gains or losses on long-term assets & liabilities are not shown currently.

· Items in the income statement are generally translated at the average exchange rate for the period covered. However, those items that relate to revenue or expense items associated with non-current assets (such as depreciation changes) or long-term liabilities (amortization of debt discount) are translated at the same rate as the corresponding balance sheet items.