Analysis of Gains or Losses from Foreign Monetary Items: An Application of Purchasing Power Parity Concepts.

This paper proposes a multiequation system for analyzing gains and losses from holding foreign monetary items, including currency, based on a concept called "Purchasing Power Parity." For statements that are translated and then restated. a three equation system is recommended. For statements that are translated without restatement, only two of the three equations are applicable. The purpose of analyzing gains or losses from holding foreign currency into three components is to improve performance measurement and planning of the foreign monetary components of working capital. Also, by identifying variables behind observable phenomena. The latter part of the paper relates research implications of the analysis to recent work by scholars Robert Z. Aliber and Clyde P. Stickney. The translate-restate procedure used in this paper was cited in the Financial Accounting Standards Board's proposed statement on "Financial Reporting in Units of General Purchasing Power," which also described the restatement part of the procedure. The translation procedure was presented in the proposed statement on "Accounting for the Translation of Foreign Currency Transactions and Foreign Currency Financial Statements."