Will the following ratios be the same or different under the Temporal Method vs. All-Current Method. 1. Return on Assets 2. Debt/Assets 3. Net Profit Margin 4. Accounts Receivable Turnover 5. Quick Ratio
Net profit margin definitly the same.
I’m thinking Quick Ratio. Current Assets/Current Liabilites If Current Assets and Current Liabilites are all monetary then they would be based on current rate. Similar to All-Current Method. If Current Liabilities for instance has non-monetary items it would be based on Historical rate which would differ from the All-current method.
Sorry, the question is not multiple choice. For EACH ratio, will they be the same or different?
- Return on Assets Different. Assets definitley change (monetary vs non-monetary). NI will also change, but not by as much (historical exchange rates flowing thru the COGS and depreciation under the Temporal Method) 2. Debt/Assets Different. To the extend that we have non-monetary assets, those will be remeasured at the historical rate using the Temporal Method (vs current rate using the all-current) 3. Net Profit Margin Different. Although most account will be the same, using the average exchange rate, COGS and depreciation will cause the two ratios to differ.(historical exchange rates flowing thru the COGS and depreciation under the Temporal Method) 4. Accounts Receivable Turnover The same, Under both methods, sales are translated/remeasured using the average rate. Under both methods, accounts receivable are translated/remeasured using the current exchange rate 5. Quick Ratio The same, To the extend that inventories are the only non-monetary current asset, under both methods, both the asset and liabilities used under the Quick Ratio would be translated/remeasured using the current exchange rate
GMofDen Wrote: ------------------------------------------------------- > I’m thinking Quick Ratio. Current Assets/Current > Liabilites Quick ratio is [Current assets - Inventory] / Current liabilies What you describe is the current ratio > > If Current Assets and Current Liabilites are all > monetary then they would be based on current rate. > Similar to All-Current Method. Inventories are non-monetary > > If Current Liabilities for instance has > non-monetary items it would be based on Historical > rate which would differ from the All-current > method.
man, its been a long time since I studied this…methinks a revisit is in order.
Oliv.- If you assume that all firms have inventory.
Olivier got them… And these are assuming all of the things Oliver pointed out (fixed assets are present, company has inventory, etc) are true as the CFAI usually does unless they specifically say otherwise. Income Statement: • Sales are the same • Other expenses are the same • Cost of goods sold is different • Depreciation is different • Net income is different Balance Sheet: • Accounts receivables and cash are the same • Inventory is different • Fixed Assets are different • Debt is the same Return on Assets (NI/Assets)
olivier Wrote: > 3. Net Profit Margin > > Different. > Although most account will be the same, using the > average exchange rate, COGS and depreciation will > cause the two ratios to differ.(historical > exchange rates flowing thru the COGS and > depreciation under the Temporal Method) > Not to mention the translation g/l goes on the income statement under the temporal method, but not under all-current.
Good catch Dimes27 !!!
Dang I need to go back and look at that. Really rusty. My bad on my wrong one above.
I just did a FSA review. This was the worst/hardest reading imo.