【正文】 e that use a single translation rate to restate foreign balances to their domestic currency equivalents and those that use multiple rates. Single rate method The single rate method, long popular in Europe, applies a single exchange rate, the current or closing rate, to all foreign currency assets and liabilities. Foreign currency revenues and expenses are generally translated at exchange rates prevailing when these items are recognized. For convenience, however, these items are typically translated by an appropriately weighted average of current exchange rates for the period. Under this method, the financial statements of a foreign operation (viewed by the parent as an autonomous entity) have their own reporting domicile: the local currency environment in which the foreign affiliate does business. Under the current rate method, the consolidated statements preserve the original financial statement relationships (such as financial ratios) of the individual entities as all foreign currency financial statement items are translated by a single rate. That is, consolidated results reflect the currency perspectives of each entity whose results go into the consolidated totals, not the singlecurrency perspective of the parent pany. Some people fault this method on the grounds that using multiple currency perspectives violates the basic purpose of consolidated financial statements. For accounting purposes, a foreign currency asset or liability is said to be exposed to exchange rate risk if a change in the exchange rate causes its parent currency equivalent to change. Given this definition, the current rate method presumes that all local currency assets are exposed to exchange risk as the current (versus the historical) rate changes the parent currency equivalent of a foreign currency balance every time exchange rates change. This seldom happens, however, as inventory and fixed asset values are generally supported by local inflation. Consider the following example. Suppose that a foreign affiliate of a . multinational corporation (MNC) buys a tract of land at the beginning of the period for FC1000000. The exchange rate (historical rate) was FC1=$1. Thus, the historical cost of the investment in dollars is $1000000. Due to inflation, the land rises in value to FC 1500000(unrecognized under . GAAP) while the exchange rate declines to =$1 by period’s end. If this foreign currency asset were translated to . dollars using the current rate, its original dollar value of $1000000 would now be recorded at $714286 implying an exchange loss of $285714. Yet the increase in the fair market value of the land indicates that its current value in . dollars is really $1071285. This suggests that translated asset values make little sense without making local price level adjustments first. Also, translation of a historical cost number by a current marketdetermined exchange rate produces a result that resembles neither historical cost nor current market value. Finally, translating all foreign currency balances by the current rate creates translation gains and losses every time exchange rates change. Reflecting such exchange adjustments in current ine could significantly distort reported measures of performance. Many of these gains and losses may never be fully realized, as changes in exchange rates often reverse direction. Multiple rate methods Multiple rate methods bine the current and historical exchange rates in the translation process. Currentnoncurrent method Under the currentnoncurrent method, a foreign subsidiary’s current assets and current liabilities are translated into their parent pany’s reporting currency at the current rate. Noncurrent assets and liabilities are translated at historical rates. Ine statement items (except for depreciation and amortization changes) are translated at average rates applicable to each month of operation or on the basis of weighted averages covering the whole period being reported. Depreciation and amortization changes are translated at the historical rates in effect when the related assets were acquired. Unfortunately, this method makes little economic sense. Using the yearend rate to translate current assets implies that foreign currency cash, receivables, and inventories are equally exposed to exchange risk. This is simply not true. For example, if the local price of inventory can be increased after a devaluation, its value is protected from currency exchange risk. On the other hand, translation of longterm debt at the historical rate shifts the impact of fluctuating currencies to the year of settlement. Many consider this to be at odds with reality. Moreover, current and noncurrent definitions are merely a classification scheme, not a conceptual justification of which rates to use in translation. Moarynonmoary method The moarynonmoary method also uses a balance sheet classification scheme to determine appropriate translation rates. Moary assets and liabilities are