I saw this thread which says:
“Temporal method: LIFO - COGS at average rate and Inventory at historical rate FIFO - COGS at historical rate and Inventory at average rate”
My doubt is, when we are using average rate for computation of inventory under FIFO, are we supposed to use ‘Average rate for the year’ or ‘Weighted average rate when inventory was acquired’?
What about COGS in temporal method?
for inventory, your would use historic or weighted under temporal mentod. If investory was acquired using weighted average cost, use that or use historic cost if not used weighted cost method.
as far as COGS in temporal, I’d use historic. I think the only time average rates are used in temporal method when assets or liabilities are measurable in monetery terms.
Please correct me, if I’m heading in wrong direction
The historical exchange rates used to translate inventory (and cost of goods sold) under the temporal method will differ depending on the cost flow assumption—first in, first out (FIFO); last in, first out (LIFO); or average cost—used to account for inventory. Ending inventory reported on the balance sheet is translated at the exchange rate that existed when the inventory’s acquisition is assumed to have occurred. If FIFO is used, ending inventory is assumed to be composed of the most recently acquired items and thus inventory will be translated at relatively recent exchange rates. If LIFO is used, ending inventory is assumed to consist of older items and thus inventory will be translated at older exchange rates. The weighted-average exchange rate for the year is used when inventory is carried at weighted-average cost. Similarly, cost of goods sold is translated using the exchange rates that existed when the inventory items assumed to have been sold during the year (using FIFO or LIFO) were acquired. If weighted-average cost is used to account for inventory, cost of goods sold will be translated at the weighted-average exchange rate for the year.
Nice copy-paste of the CFAI’s material Tom, but I would suppose most people coming to this site have already read it, but still have questions. Anyway, what I don’t get is that, when using the average-cost method, we use the “weighted-average exchange rate during the year”. Weighted against what? I suppose the weights are the amount sold and the exchange rates to be averaged are those on the day of the sale? I can’t figure this out anywhere.