Ok there’s something i don’t get… the process of converting the statements from functional currency to the reporting currency is called translation… then why does the TRANSLATED COGS decrease when the LOCAL currency depreciates?
are u assuming fifo or lifo?
it doesn’t matter… why are we considering the LOCAL CURRENCY in the translation process, i.e. doesn’t translation deal with functional + reporting currencies?
yeah but in that case functional currency would be the same as local. Where did you see this? if the local currency depreciates that same amount of COGS would translate into a lower reporting currency amount. Say COGS = 200,000 LC and the exchange rate is 2LC/, which then depreciates to 2.5LC/. Originally COGS would be 100,000USD, after the depreciation it would go down to 80,000 USD. Thats how I rationalize it, hopefully someone else will chime in as well.
local currency depreciates so the exchange rate in (fc/lc) by which you are translating in the end is lower than the older exchange rate (fc/lc). if you are using lifo your cogs would be translated at the more recent rate…thus it would be decreasing…