How should currency translation adjustments be treated in a consolidated model?

• A. Translate assets/liabilities at closing rates, P&L at average rates, and accumulate translation adjustments in equity (OCI).
• B. Translate all accounts at closing rates.
• C. Ignore currency translation entirely.
• D. Translate assets at closing rates and P&L at average rates.

Answer: (A)

When consolidating foreign operations, translate assets and liabilities at the period-end closing rate, translate income and expenses at the average rate for the period, and accumulate the resulting translation differences in equity as a currency translation adjustment (OCI). This keeps the P&L focused on operating performance in the local currency, while the effect of exchange-rate movements is captured in equity until the foreign operation is disposed. This approach matches the standard practice, making it the best choice. Other methods either ignore the translation impact, apply closing rates to everything, or omit the OCI treatment, which would misstate both P&L and equity.