There was a question that stated “Assume that inventory is accounted for using the LIFO inventory assumption and was bought and sold evenly throughout the year.” ANd this is using the temporal method. Based on this would you use the avg or beginning year rate to translate the COGS and Inventory?
You use beginning year rate to translate ending inventory because you have sold the inventory purchased during the year (i.e. last in-first out) and as such, are left with the same inventory that you had at the beginning of the year. Use average rate for COGs because you sold inventory purchased during the year. Pretty straight-forward stuff if you read the material.
It should not matter for All Current/Translation we always use Avg Rate for COGS But it surely matters for Temporal method, when we should ideally use Hist Rate for COGS, but if this sentence is given then we use Avg Rate. Correct me if I am wrong?
- End Inventory using historical rate - COGS using mixed rate (new purchases at avg rate and some beginning inventory at historical rate)
What if inventory was calulated using FIFO. What rate would you use?
Under temporal, the rate you purchased it at (likely the average rate during the yr). Under current, use the current rate (i.e. end of period rate). What books are you using? If Schweser, I suggest that you read pages 240 to 242 of book 2.