I have observed in some of the problems in QBank when asked to calculate for COGS using temporal method and they mess up the rates so badly that it’s hard to believe the answer they get is really the ans we should be getting on the test day Like… Ending Invt - they used Avg Rate (why? – Current Rate should be more appropriate, if they were to ask me) Beg Invt - they used Historic Rate (OK - this is fine) Purchases - they used Avg Rate (can somewhat digest - since the purchases could have been evenly spaced all throughtout the year)
I think it really depends on what accounting method the firm uses and when the inventory was purchased throughout the year.
Niblita75 Wrote: ------------------------------------------------------- > I think it really depends on what accounting > method the firm uses and when the inventory was > purchased throughout the year. FIFO is given in the problem - now can you elaborate, Nib? - I am sick and tired of FSA
COGS can be calculated using historical prices, then get E using E = B + P - COGS where B - old rate, P - historical rate and COGS calculated above
For ending inventory, I can’t think of a solid reason why they use average rate. Can you give me a page number and whether its CFAI or Schweser.
It’s a vignette and I got all wrong. QNumber: 8978
Wow that first problem sucks. Whenever I see beginning inventory given, i’ll think something is up.
Niblita75 Wrote: ------------------------------------------------------- > Wow that first problem sucks. Whenever I see > beginning inventory given, i’ll think something is > up. ditoo… I just couldn’t think of a way to solve it, so marked it and went ahead.
And if you really like some real difficult crazy Synthese stuff… go for this mini-vignette: 28814. It sucks to the highest level possible! I am 0/3 for this one too!
I didn’t have a chance for the third question.
Inventory + COGS + Purchase need to use historical rate for Temporal method. Historical rate is the rate at which each transaction was done. For FIFO accounting: Beginning Inventory - will use historical rate (because its the material purchased at old rate) Purchase - should also be done at historical rate but the problem is its extremely difficult to record and store rates for each transaction so use average rate. Ending Inventory - If I assume that the amounts sold in the period is more than the begining inventory amount, then the ending inventory amount will be material purchased in this period. So we will use the average rate for ending inventory (reasoning being the same as purchase). hope it helps.
Kabhii you rock, Thanks a million!