Temporal Method

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DEFINITION of 'Temporal Method'

A method of foreign currency translation that uses exchange rates based on the time assets and liabilities are acquired or incurred. The exchange rate used also depends on the method of valuation that is used. Assets and liabilities valued at current costs use the current exchange rate and those that use historical exchange rates are valued at historical costs.

BREAKING DOWN 'Temporal Method'

By using the temporal method, any income-generating assets like inventory, property, plant and equipment are regularly updated to reflect their market values. The gains and losses that result from translation are placed directly into the current consolidated income. This causes the consolidate earnings to be rather volatile.

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