What type of exchange rate is applied to nonmonetary components in the balance sheet?

The historical rate is the correct choice for determining the exchange rate applied to nonmonetary components in the balance sheet. Nonmonetary components, such as property, plant, and equipment, inventory, and intangible assets, are recorded at the exchange rate that was in effect at the time of the transaction or the date of acquisition. This means that they are not remeasured at current exchange rates, which could fluctuate over time.

Using the historical rate ensures that these assets reflect the values that were realized when they were acquired, rather than a potentially distorted market value at a later date. This approach maintains the integrity of financial statements by providing consistency and comparability over time based on the initial transaction values.

Current exchange rates, weighted average rates, and spot rates are more appropriate for monetary components or for translating the financial statements of a foreign subsidiary but do not apply to nonmonetary assets. This distinction is crucial for proper financial reporting and compliance with accounting standards.