Please tll me how to calculate COGS/ Closing stock in temporal method is
a) fifo
b) lifo
c) weighted average historical exchange rate given and also told either lifo or fifo is used
We need . . . like . . . a bat signal.
Under the temporal method you use historical exchange rates for inventory and for COGS.
If you’re using FIFO, then the old costs go to COGS (so “historical” means historical: old costs, old exchange rates), and the new costs go to ending inventory (so “historical” means “new”: new costs, new exchange rates).
If you’re using LIFO, then the old costs go to ending inventory (so “historical” means historical: old costs, old exchange rates), and the new costs go to COGS (so “historical” means “new”: new costs, new exchange rates.)
The exception to these occurs when you buy and sell inventory (more or less) evenly throughout the year; in that case, “historical” means average: you use the (weighted) average exchange rate for the year.
If you’re using average cost for inventory and COGS, then “historical” means average; you use the (weighted) average exchange rate for the year.
Sir please explain with example
Also in some questions they aleady give weighted average cost of purchase of inventory and also tell fifo /lifo is used. Then we will take weighted average ?
Beginning of the year exchange rate is USD1.45/EUR, end of the year exchange rate is USD1.33/EUR, weighted average exchange rate is USD1.39/EUR.
Everybody uses the temporal method.
Company A buys inventory twice a year and uses FIFO. They’ll convert COGS at USD1.45/EUR and ending inventory at USD1.33/EUR.
Company B buys inventory twice a year and uses LIFO. They’ll convert COGS at USD1.33/EUR and ending inventory at USD1.45/EUR.
Company C buys inventory evenly throughout the year and uses FIFO. They’ll convert both COGS and ending inventory at USD1.39/EUR.
Company D buys inventory evenly throughout the year and uses LIFO. They’ll convert COGS at USD1.39/EUR, and any increase to inventory at USD1.39/EUR; their beginning inventory that is still in ending inventory (no LIFO liquidation) will be converted at the exchange rate from long ago when they purchased it. (I wouldn’t worry about this case.)
They probably do that when it’s a Company C or Company D situation: purchases and sales evenly throughout the year. Use USD1.39/EUR for COGS and ending inventory as I wrote above.
Wow thanks sirji .
Also can you please tell me calculation for futures contact prices for treasury bill contracts ?
You’re welcome, as always.
Happily, but please start a new thread on that. It’ll make it easier for others to find.
very helpful…thanks as always.
What about current method, does the inventory flow assumption used change anything? Or is it just inventory= current, COGS= avg, regardless?
I believe it doesn’t.
I believe so. (I wish that I had my Level I books with me; I won’t be back home for another 10 days, alas.)