when using the temporal method… we convert inventory using the historical rate… now on the income statement i thought we also convert cogs ant the historical rate. but i just got a q wrong in q bank. in the question the cogs was converted using the average rate… is this what we are supposed to use?
This is the 10,000th thread in L2 forum!
nikko, if you’ve described the QBank question accurately, it’s absolutely wrong (which should be reassuring to your intuition). Only monetary assets and liabilities are translated at current rates under the Temporal Method, so it follows that inventories and PP&E are translated at historical rates (i.e. the rate in effect at the time they were acquired). Therefore, COGS and depreciation have to be translated at historical rates to prevent a disconnect between the balance sheet and the income statement. Other income statement accounts are translated at the average rate. Take a look at Reading 26 in this year’s curriculum, most specifically page 176 of Volume II, the first four paragraphs, and the very bottom of page 177 following over to 178. Maybe you can reprint the QBank question for us and check whether it’s reported in Schweser errata.
thanks … i was getting all messed up… this must be errata… q bank id is 39705 part 5