Global Finance 383remeasured at the ever-changing current rate. However, none of the other non-
monetary balance-sheet accounts creates exposure because their dollar value is
frozen at fixed, historical exchange rates.
In the above example, monetary liabilities (accounts payable of FC400
plus notes payable of FC1,020) are well in excess of monetary assets (cash of
FC200 plus accounts receivable of FC100) and net liability exposure results.
Appreciation of the foreign currency increased the dollar valuation of this net
liability exposure and produced a remeasurement loss of $87. This remeasure-
ment loss is included in computing conventional net income, and not in other
comprehensive income as is the case under the all-current translation method.
Beyond these separately reported income statement effects of translation
gains and losses, the translated financial statements are affected in some other
less obvious ways. These are discussed next.
Other Effects of Statement Translation
and Remeasurement
The most noticeable effects of the statement translation and remeasurement
are (1) the translation adjustment that is part of other comprehensive income
under all-current translation and (2) the remeasurement gain or loss that is in-
cluded in realized net income with statement remeasurement under the tem-
poral method.
Statement Relationships under Translation
versus Remeasurement
Significant differences in earnings resulted in the above example with transla-
tion under the all-current method versus remeasurement under the temporal
method. These results are due to (1) differences in currency exposure under
the two methods and (2) differences in the location of translation-related gains
and losses in the financial statements under the two methods. Translation ad-
justments go to other comprehensive income under all-current translation, but
remeasurement gains and losses are included in net income with remeasure-
ment under the temporal method.
Key statement relationships are affected by translation versus remeasure-
ment. For example, both the current ratio (ratio of current assets to current
liabilities) and the debt to equity ratios differ between the two methods. It is
also common for gross margins to differ between the two methods. However,
the simple nature of this constructed example results in the same gross mar-
gins under each translation/remeasurement method. These measures are pre-
sented in Exhibit 12.21.
Noticeable in Exhibit 12.21 is the fact that the values of each of the mea-
sures from the foreign-currency statements are preserved with translation
under the all-current method. However, both the working capital and debt to
equity measures differ from these values in the case of remeasurement under