So this always confused me… under the temporal method where
COGS - translated @ histoircal rate Inventory - translated @ historical rate
Do you use the rate from when it was acquired? or the average over the timespan?
Thanks,
Rate from when it was acquired. Average rate under temporal method is used only for sales, SG&A, interest and tax exps.
current rate method, you mean
Yes in temporal rate method you translate COGS/Inventory at the historical rate at which the inventory was acquired. The average rate is used in current rate method
No i mean temporal method.
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Under the temporal method, companies must keep record of the exchange rates that exist when non-monetary assets (inventory, prepaid expenses, fixed assets, and intangible assets) are acquired, because these assets (normally measured at historical cost) are translated at historical exchange rates. Keeping track of the historical exchange rates for these assets is not necessary under the current rate method. Translating these assets (and their related expenses) at historical exchange rates complicates application of the temporal method.
So, we will use exact exchange rates in real life, but for exam we will have some averages instead.