Temporal Method

(noun)

Cash, receivables, and liabilities are re-measured into U.S. dollars using the current exchange rate.

Related Terms

Examples of Temporal Method in the following topics:

  • Temporal Classification

    • Re-measurement requires the application of the temporal method.
    • A method of foreign currency translation that uses exchange rates based on the time assetsand liabilities are acquired or incurred, is required.
    • The exchange rate used also depends on the method of valuation that is used.
    • By using the temporal method, any income-generating assets like inventory, property, plant, and equipment are regularly updated to reflect their market values.
    • Identify when it would be necessary to use the temporal method on the balance sheet

  • Defining the Payback Method

    • The payback method is a method of evaluating a project by measuring the time it will take to recover the initial investment.
    • The payback method is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money, risk, financing or other important considerations, such as opportunity cost.
    • An implicit assumption in the use of the payback method is that returns to the investment continue after the payback period.
    • The payback method does not specify any required comparison to other investments or even to not making an investment .
    • The payback method is a simple way to evaluate the number of years or months it takes to return the initial investment.

  • Depreciation

    • Methods of computing depreciation may vary by asset for the same business.
    • Several standard methods of computing depreciation expense may be used, such as fixed percentage, straight line, and declining balance methods.
    • One popular accelerated method is the declining-balance method.
    • Under this method the book value is multiplied by a fixed rate.
    • Sum-of-years' digits is a depreciation method that results in a more accelerated write-off than straight line, but less than the declining-balance method.

  • Advantages of the IRR Method

    • The IRR method is easily understood, it recognizes the time value of money, and compared to the NPV method is an indicator of efficiency.
    • One advantage of the IRR method is that it is very clear and easy to understand.
    • The IRR method also uses cash flows and recognizes the time value of money.
    • Compared to payback period method, IRR takes into account the time value of money.
    • This is because the IRR method expects high interest rate from investments.

  • Inventory Techniques

    • FIFO, LIFO, and average cost methods are accounting techniques used in managing inventory.
    • These methods are used to manage assumptions of cost flows related to inventory.
    • The difference between the cost of an inventory calculated under the FIFO and LIFO methods is called the LIFO reserve.
    • Average cost method is quite straightforward.
    • There are two commonly used average cost methods: Simple weighted average cost method and moving average cost method.

  • Becoming an International Bank

    • Method 1: The U.S. bank opens a bank branch in a foreign country.
    • Method 2: The U.S. bank becomes a holding company.
    • Method 3: The U.S. bank becomes an Edge Act Corporation.
    • Method 4: The U.S. bank creates an international banking facility (IBF).
    • Method 1: Foreign bank opens an agency office.

  • Disadvantages of the Payback Method

    • The payback period is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money, risk, financing, or other important considerations, such as the opportunity cost.
    • Thus, one project may be more valuable than another based on future cash flows, but the payback method does not capture this.

  • Defining Accounts Receivable

    • The first method is the allowance method, which establishes an allowance for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for accounts receivable.
    • The second method is the direct write-off method.
    • It is simpler than the allowance method in that it allows for one simple entry to reduce accounts receivable to its net realizable value.
    • A company has a choice of when to actually recognize revenue via various accounting methods.
    • This chart lays out methods for accruing revenue and expenses in accounting.

  • Chapter Questions

    • Identify methods a bank can protect itself from the interest rate risk.

  • The Forecast Budget

    • The adjusted net income method starts by calculating operating income (EBIT or EBITDA) and adding/subtracting short-term changes in the balance sheet, such as those that occur to inventories, payable, receivables and other short-term.
    • This method requires a good deal of data and statistical skill, and is best utilized for mid-term forecasting (unlike the direct method, which is much better for a shorter time frame).
    • The advantage of this method is that it is often accurate to the day or week, enabling high accuracy.
    • Understand the various methods of forecasting budgets, and the importance of doing so regularly