I just want to say I have read Schweser 3 times and now scoring less than 50% on the FSA section of my qbank… i m very frustrated i work 10+ hrs per day and i dont have much time left to study… damn!
For example, notes clearly says COGS is calculated with avg rate… so thats what I do. But the answer says that I need to convert BEGINV in historic rate, Purchase with average rate (since it is thru out the year), and ending inventory with the year-end historic rate… then COGS = BEG INV + P - END INV… which is not calculated directly thru the avg rate… why is thattt
There are some really tricky stuff Schweser prepares you for that never comes up on the exam. I doubt you’ll have to value FIFO/LIFO inventory to do translation adjustments. Last year I studied that like mad. Accounting is a section that can bog you down in unneccessary calulations.
monki Wrote: ------------------------------------------------------- > For example, notes clearly says COGS is calculated > with avg rate… so thats what I do. But the answer > says that I need to convert BEGINV in historic > rate, Purchase with average rate (since it is thru > out the year), and ending inventory with the > year-end historic rate… then COGS = BEG INV + P > - END INV… which is not calculated directly thru > the avg rate… why is thattt COGS - Always average rate for All-current method but mixed for temporal. You might understand the temporal method (the confusing one) if you try to break the components into following manner: Beginning Inventory = Translated at historical rate (at which the inventory was bought). Purchases = should also be done at historical rate (rate at which purchases are done) but since the rate for each purchase is not given we use avg. rate. If you use LIFO method of accounting, COGS will include the new purchases as well as some amount of beginning inventory and Ending inventory will be a portion of beginning inventory. So we convert ending inventory using historical rate used for beginning inventory. If you use FIFO method, COGS will include new purchases and whole of the beginning inventory. So Ending inventory will be a portion of new purchases which would be converted at the average rate used for new purchases. Similarly, you can breakdown components of Fixed asset and depreciation. Hope it helps.
no but schweser says avg rate for temporal method … now it is mixed … argh !!! they say it is mixed only on equity and net income originally
on pg 242 it says use historical rate for COGS in temporal method not average. Definition of Historical rate is the rate at which transaction was done,i.e the rate at which inventory was purchased. Normally while solving we assume beginning purchases are made at the historical rate which is the start of year exchange rate. As for inventory purchase if we have exchange rate for each date of purchase then use that else use average rate for the period. As for ending inventory its the left over amount which was not sold during the period so convert it at the apporpriate historical rate which will be beg. of year rate in case of LIFO and average rate in case of FIFO.