FIFO Vs LIFO and Appreciating vs Depreciating LC [MNC Operations]

CFA Level II
#1

I am looking at the Table from Schweser-Pg-242 (SS6 - MNC Operations) Is there an intuitive way to remember what they have tried to layout in that table of FIFO Vs LIFO and the Appreciating vs Depreciating LC Depreciating LC -------------------- FIFO - HIGHER COGS - LOWER Ending Inventory LIFO - LOWER COGS - HIGHER Ending Inventory Appreciating LC -------------------- FIFO - LOWER COGS - HIGHER Ending Inventory LIFO - HIGHER COGS - LOWER Ending Inventory I am stuck there for last 1 hour, probably ate too much for lunch and time for a nap now.

#2

… I don’t know, I stared at it for a while, thought about it while sort of forgetting the LC part, just considering it as regular inflation, and it made sense. But I haven’t looked at that for a couple of weeks, but looking at it again I think my understanding is sound. Take a nap, maybe it will make some more intuitive sense after?

#3

I don’t plan on memorizing the table, just thought more about first considering the Inventory Valuation method (FIFO vs. LIFO), its effects on COGS and End Inv, and then what inflation is doing to prices. That two-step reasoning really worked for me, and still seems to looking at the table.

#4

take a break- this is not something that needs memorization… like mike said, it’s pretty intuitive. you’ll get it to stick. i am now in semi-study mode as i watch the sox/yanks game. beckett is my homeboy and papi best get out of his funk soon. SS13, you’re on tap in a few. i’ll be here for sat night roll call later. equity and i are having an all day/all night date.

#5

Think of this from the stand point of Rising Prices and declining prices.In the currency is depreciating then Prices are rising and if the currency is appreciating then prices are declining.Eg for rising prices (Depreciating currency) under FIFO COGS will be higher and Ending Inventory will be lower etc

#6

So if I go by that logic then… Say for case of Depreciating Local Currency (which is equivalent to saying that the Local environment is experience a Rising price levels), in that case, if we consider FIFO inventory accounting. The inventory sold are the ones that were purchased first, so the old inventory at lower price levels gets sold first, hence COGS should be LOW in that case and Ending Inventory i.e. the inventory that was recently purchased at higher prices is still on the books, so Ending Inventory should be HIGH. But it’s all other way round in that table… Could somebody elaborate, explaining me one case from that table??? I was not asking a way to memorize that table (since that’s not the rite way to do a CFA), only was trying to untangle a mental block (which still seems to persist…)

#7

Doesn’t whether the prices are rising or falling depend on whether the company in question is buying inventory from abroad or not? If the above is taken into consideration, Depreciating LC means falling prices. so in the case of FIFO --> Rising COGS, Ending Inv Lower LIFO --> means Falling COGS, Rising Ending Inv. and so on for the Appreciating LC. Does this make any sense? CP

#8

Thanks cpk, I just wish you were doing the L2 with us this time around. You are such a valuable resource to AF. Thanks a ton buddy!! A humble being (on orkut) typed-in for me the analogy of how all this works out and finally I have this concept nailed.

#9

This was not meant to take a deeper dive into the analytical CONSEQUENCES.The posting was related to helping to MEMORISE and that is the “strategy” I use to help me to memorise it. Sorry if I mislead you.