What is the temporary method?

The time method is used in accounting that deals with foreign currency transactions. It is a way to translate the value of a foreign currency transaction, which a foreign subsidiary back into the currency of the basic country of parent company, which is also called maternal currency. The assets and liabilities of the company are translated by different exchange courses depending on when they were created and how they are appreciated.

The name concerns the use of exchange courses that correspond to the time setting of assets and liabilities; If the item is historical, the temporary method assigns it with a historical exchange rate. An alternative to a temporary method is the method of all current in which all items in the balance sheet are translated using the current exchange method. This retains the ratio between assets and liabilities, but ignores the inherent value of the objects that the temporary method retains.T from one currency to another. This is done when the company owns more than 50 percent of shares in a foreign company that becomes a subsidiary of the parent company.Its balance sheet is translated in such a way that transactions made by a subsidiary of companies may be reported as if they were made by a parent company.

When using a time method, the exchange rate used for each item in the balance sheet of the company depends on the way the item is appreciated: as a historical or current asset. For example, if the company purchased stocks worth 5,000 units in foreign currencies a year ago when one per exchange rate was one per, then this inventory will be awarded at 5,000 maternal currency units, although the current exchange rate is 1.5 to one. If a subsidiary took a loan that is still outstanding, it would be translated according to the current exchange rate, because the funds that the company could only be transferred to the use of the use for repayment at the current rate.

This method of translation means in practice that the current rate is used to translate money items,While historical rates are used to translate non -monetary items. The principle of this is that the actual asset, such as part of the supply, maintains its value regardless of the fluctuation of the exchange rate. It may be worth more or fewer units, but the units are different.

You can think of changing the currency when it comes to one currency to clarify this concept. You can pay for an ice cream cone with a dollar or 100 groups, but it's not more expensive if you take advantage of the second option. However, money items are not naturally valuable because money is in exchange. Its value is therefore dependent on what can be replaced, so it is appreciated by the current rate.

different treatment of monetary and non -monetary items means that the assets and liabilities are the ophthen translated differently. Assets are more likely not to be motivated. The asset ratio may change due to the exchange rate fluctuations if the accounting is carried out by the time method. A seemingly unfavorable change of exchange rate may lead to the profit of the balance sheetSTI.