If a currency is depreciating, how is average cost lower than historical?
becoz current exchange rate is lower, which will lead to the average exchange rate being lower than historical exchange rate, thus historical cost will be higher (because it is being translated at a higher rate)
for example, if US is the parent and it has an indian subsidiary.
The current exchange rate is 60 INR per dollar. Now if at the beginning of the year, the rate was 50 and slowly depreciated to 60 by the end of the year, historical COGS based on FIFO may be lower than average COGS, right?
dude you are going at it wrong. look from the perspective of the parent. Dollar has appriciated in your example not depriciated
lets say if current rate in 50 Rupees/ dollar and historically it was 60/ dollar, than the historical COGS under FIFO will be higher than the average COGS.
got it. thanks!