FIFO and temporal/current rate solution mistake not in errata?


I am looking at question 21 (Redline Products Inc.) from the CFA end of chapter questions in Financial Reporting which looks at FX rates on inventory etc.

The solution reads “A is correct. Because the US dollar has been consistently weakening against the Singapore dollar, cost of sales will be lower and gross profit higher when an earlier exchange rate is used to translate inventory, compared with using current exchange rates.”

But the US dollar is consistently strengthening as per the table in the question (exhibit 2). C is my answer. I don’t see this published in the errata so am I looking at this incorrectly?

Thanks a mil


You’re looking at it wrong.

If you have a USD/SGD rate, you divide the USD amount by the rate in order to get to the SGD amount.

The table shows that the USD/SGD rate is going up. If you divide by a higher amount you will get a lower SGD amount.

December 2006: $1,000,000 USD/.649 = 1,549,832.049 SGD

December 2007: $1,000,000 USD/.671 = 1,490,312.966 SGD —> USD is weakening