Question

which of the following statements pertaining to the functional currency translation (fct) method is incorrect? multiple choice foreign currency monetary items must be translated at the closing rate the end of each reporting period. it is appropriate to use a weighted average of the historical rates throughout a period to translate foreign currency nonmonetary items as long as the exchange rates do not fluctuate significantly. any exchange adjustments resulting from the translation of monetary items at rates different from those used on initial recognition are recognized in other comprehensive income. the fct method produces translation results consistent with the valuation practices for domestic operations.

Answer 1

The incorrect statement about the functional currency translation method is that exchange differences are recognized in other comprehensive income; they are usually recognized in profit or loss for the period.

Step-by-step explanation:

The student asked which statement regarding the functional currency translation (FCT) method is incorrect. The incorrect statement is: "any exchange adjustments resulting from the translation of monetary items at rates different from those used on initial recognition are recognized in other comprehensive income." The fact is, such exchange differences are typically recognized in profit or loss for the period in which they arise, not in other comprehensive income.

Regarding the FCT method, it is true that for foreign currency monetary items, we must use the closing rate at the end of each reporting period for translation. For nonmonetary items, a weighted average rate can be used assuming exchange rates don't fluctuate significantly. Lastly, the FCT method is designed to produce translation results consistent with valuation practices for domestic operations.