Where do remeasurement gains and losses appear under the temporal method?

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AcadiFi · Accepted Answer

Under the temporal method (used when the functional currency equals the parent's reporting currency), remeasurement gain...

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**Calculation approach:**

The remeasurement gain/loss is a plug figure. You remeasure all balance sheet items using temporal method rules, then the difference needed to balance the accounting equation becomes the gain or loss.

**Step-by-step for Polaris Textiles (fictional):**

1. Remeasure monetary assets/liabilities at the **closing rate** (1.25 USD/FCU)
2. Remeasure non-monetary assets at **historical rates** (inventory at 1.20, PP&E at 1.10)
3. Remeasure equity at **historical rates**
4. Remeasure revenues/expenses at **average rate** (1.22) except COGS and depreciation (historical)
5. The residual = remeasurement gain or loss

| Item | FCU | Rate | USD |
|---|---|---|---|
| Cash | 100,000 | 1.25 (closing) | 125,000 |
| Inventory | 200,000 | 1.20 (historical) | 240,000 |
| PP&E net | 500,000 | 1.10 (historical) | 550,000 |
| Total Assets | 800,000 | -- | 915,000 |
| Payables | 150,000 | 1.25 (closing) | 187,500 |
| Equity (historical) | -- | -- | 710,000 |
| Plug: Remeasurement G/L | -- | -- | 17,500 |

The 17,500 gain flows through the income statement. This is the critical difference from the current rate method, where the translation adjustment goes to OCI and never touches net income. A net monetary liability position combined with a depreciating foreign currency produces a remeasurement gain.

Where do remeasurement gains and losses appear under the temporal method?

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