The current rate method refers to one of the method of two basic methods for the translation of foreign subsidiary financial statements which is the most prevalent in the world today.
It is a method of translating the financial statements of foreign affiliates into the parent’s reporting currency. All assets and liabilities are translated at the current exchange rate. Also known as the “closing rate method.
Under this method, all financial statement line items are translated at the “current” exchange rate, with few exceptions. Line items include:
• Assets and liabilities: All assets and liabilities are translated at the current rate of exchange; that is, at the rate of exchange in effect on the balance sheet date.
• Income statement items: All items, including depreciation and cost of goods sold, are translated at either the actual exchange rate on the dates the various revenues, expenses, gains, and losses were incurred or at an appropriately weighted average exchange rate for the period.
• Distributions: Dividends paid are translated at the exchange rate in effect on the date of payment.
• Equity items: Common stock and paid-in capital accounts are translated at historical rates. Year-end retained earnings consist of the original year-beginning retained earnings plus minus any income or loss for the year.