What the hell is up with this question? Below is a chart that is what schweser says is the correct temporal adjustment method followed by a question whose answer does not correlate with the text at all…what is going on? (sorry in advance for the lovely AF formatting) Schweser Says Temporal and All Current Item Temporal All Current (Remeasurement) (Translation) Monetary Assets/Liabilities Current Current Nonmonetary Assets/Liabilities Historical Current Equity Mixed Current Common Stock Historical Historical Revenues and SG&A Average Average COGS Historical Average Depreciation Historical Average Net Income Mixed Average Question - The Precision Screen Printers (PSP) Company has a foreign subsidiary, the Acer Tool & Die Company, located in the country of Rolivia. The currency of Rolivia is the Chad. The balance sheet and income statement of Acer Tool & Die Company for the year-ended December 31, 2005, is shown below. The balance sheet has been restated using the U.S. dollar as the functional currency. Acer Tool & Die Company Balance Sheet As of December 31, 2005 Chad (millions) Exchange Rate (Chad/US$) U.S. $ (millions) Cash 20 0.25 $80 Accounts receivable 30 0.25 120 Inventory 100 0.3125 320 Fixed assets (net) 500 0.3333 1,500 Total assets 650 $2,020 Accounts payable 50 0.25 $200 Capital stock 380 0.3333 1,140 Retained earnings 220 – 680 Total liabilities and equity 650 2,020 Acer Tool & Die Company Income Statement For year ending December 31, 2005 (Amounts in millions of Chad) Revenues 1,000 Cost of sales 700 Depreciation expense 50 Selling expense 30 Translation gain (or loss) Net income 220 Acer has determined that the exchange rate exposure at the beginning of 2005 is −260 Chad. The exchange rate at the beginning of 2005 was 0.3333 Chad/US. The exchange rate at the end of 2005 was 0.25 Chad/US$. The average rate for 2005 is 0.3125 Chad/US$. Beginning inventory is 90 Chad. Acer Tool & Die uses FIFO inventory valuation and depreciates fixed assets using the straight-line method. Assume that retained earnings at year end 2004 were zero, the historical exchange rate for depreciation is 0.333, and no dividends were paid during 2005. What is Acer Tool & Die’s cost of sales in U.S. dollars using the temporal method? A) $2,222. B) $2,242. C) $2,240. Your answer: C was incorrect. The correct answer was A) 2,222. The basis for using the all current method is when Functional Currency is NOT the same as Parent's Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent's Presentation Currency. Purchases = COGS − Beginning inventory + ending inventory = 710 Chad Chad Conversion US Beginning inventory 90 0.3333 $270 Purchases 710 0.3125 2,272 Ending inventory 100 0.3125 320 COGS 700 $2,222
I remember this problem. Basically the twist is that you have to adjust COGS for inventory purchases and such and only a fraction of it was purchased at a historical rate, while the remainder will be translated using the average rate for the year.
do you have a question id for this one?
87359
Which part of the answer are you finding inconsistent with the CFAI curriculum? Seems that they are translating the COGS using the historical cost at which it was purchased.
First the question asks for cost of sales, which is according to the chart in the book or p 65 of the secret sauce is done on an average so why cant we take the 700 cost of sales on the income statment and divide by the average rate second why are varying rates used for inventory and purchases valuation, especially since two are averages, since the only averages used according again to the chart are for sales g and a and revenues - non monetaries such as inventory in temporal are historical and all current are current… meh…
rolo550 Wrote: ------------------------------------------------------- > First the question asks for cost of sales, which > is according to the chart in the book or p 65 of > the secret sauce is done on an average so why > cant we take the 700 cost of sales on the income > statment and divide by the average rate check the chart again, COGS under temporal is done at the historic rate > second why are varying rates used for inventory > and purchases valuation, especially since two are > averages, since the only averages used according > again to the chart are for sales g and a and > revenues - non monetaries such as inventory in > temporal are historical and all current are > current… > they had 90 chad worth of inventory in the beginning of the year, which they translated at the historic rate under the temporal method then they had inventory purchases throughout the year, which they translated at the purchases’ historic rate which happens to be the average rate throughout the year then they netted it out to arrive at $ COGS