I’m confused at the answers given by CFAI on the EOC Q’s on Page 327 of FRA. Q 19 and 21 are the opposite as to what I think they should be… and the answer given for Q#21 says the Local currency is increasing. When i’m sure it’s decreasing. Could someone quickly take a look at this page and these questions?.. Many thanks and best of luck. Thanks.
im on that page and ive checked both questions, they seem to be right. i dont see any mention of a local currency increasing in question 21. for 21 their asking about whether gross profit margin will be higher under which inventory method.
I’m sorry… i must be off. My brain is scrambled. USD per SGD… moved from .662 to .671 Therefore, you can get more USD per SGD - meaning the local currency has increased. Not decreased as I mentioned. Correct? Thanks again.
for q 19, if the functional becomes the US dolar, the translation rate is going to be the temporal. fixed assets were bought when the singapore dollarwas relatively weaker than it is right now ( 0.568 for the for the first 1000 purchase and 0.606 for the 640). under the current rate you would translate everything at the current rate which is the 31 december rate of 0.671, singapore dollar equals more dollars, hence you would have higher assets. sales are the same under both methods, lower assets in temporal, higher fixed asset turnover.
fr q21 you use FIFO because under increasing prices, your cogs will reflect older cheaper inventory. we are given two rates for inventory, average rate vs the historical rate. effectively we want to use the lower rate, which would translate into lower cogs, hence higher gross profit margin. the weighted average historical rate is lower, which means we would translate under the temporal ( US functional currency) vs using the higher average rate of 2007 which would be used under the current rate ( singapore functional currency)