Definition for : Temporal method

The temporal method consists in translating Monetary items at the Closing rate; Non-monetary items at the exchange rate at the date to which the historical Cost or valuation pertains; Revenues and Charges on the Income statement theoretically at the exchange rate prevailing on the transaction date. In practice, however, they are usually translated at an average exchange rate for the period. Under the temporal method, the difference between the Net income on the Balance sheet and that on the Income statement is recorded on the Income statement under Foreign exchange gains and losses. This method is used when the Subsidiary is not independent of its Parent company, because its operations are an integral part of another company.
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