dinesh.sundrani Wrote: ------------------------------------------------------- > > This is not happening. They have to give this > (even-consistent-buying) information in the > question itself. Schweser makes a point to say that you should use the average rate for COGS with the temporal method becuase you are using an average of historical rates on purchases throughout the year. I agree that the exam won’t be so vague, but either way you are making an assumption (assuming inventory was purchases in that year). If you use the historical rate you are making the assumption that purchases were all at the beginning of the year…if you use the average you are saying they are appoximately even throughout the year.
I think I remember way back when at John Harris’ seminar he taught this topic and indicated that this knowledge (COGS under the temporal method) is testable material. I don’t think they will necessarily give you that information.
i think it’s reasonable to assume that purchases were made evenly unless otherwise stated in the question.
^ sounds pretty reasonable. So say along with me… all of you average rate for COGS with the temporal method average rate for COGS with the temporal method average rate for COGS with the temporal method average rate for COGS with the temporal method average rate for COGS with the temporal method average rate for COGS with the temporal method . . . .
dinesh, I’m not going to say that. it’s historical rate that can be estimated as average rate in some scenarios that are considered common. in all-current method COGS is always average in any scenario.
Correct maratikus ! COGS -> HR (Temporal) … but for some very-common cases we may use AR here. Even-consistent-buying being one such case. COGS -> AR(All Current) … simple enough
I am revising this right now and it is pretty confusing. If you look at the examples in schweser, COGS is different from the all current method (using avg rate) and the temporal example, which is a FIFO firm (which we said should use avg rate). On one page they say to use avg rate for COGS, but then their example refutes it! I dont’ think it is worth spending time on, but they say you have to figure out COGS by using the formula: COGS=BI+P-EI They say COGS is the plug figure and that is why it is different in the two examples above. I can understand everything they are doing except why the are using the average rate for EI when calc COGS for temporal.
I agree with Dsylexic… see the below question where schweser gives a completely different expalnation which supports choice a Hann Company is a U.S. multinational firm with operations in several foreign countries. Hann has a 100% stake in a French subsidiary. The foreign subsidiary’s local currency has appreciated against the U.S. dollar over the latest financial statement reporting period. In addition, the French firm accounts for inventories using the FIFO inventory cost-flow assumption. The gross profit margin as computed under the current rate method would most likely be: A) higher than the gross profit margin as computed under the temporal method. B) equal to the gross profit margin as computed under the temporal method. C) lower than the gross profit margin as computed under the temporal method. D) a comparison of the ratio between the two methodologies is not possible. Your answer: A was incorrect. The correct answer was C) lower than the gross profit margin as computed under the temporal method. The average rate is used to convert sales under both the temporal method and the current rate method. Hence, the only difference between the two computations is on COGS. Since the firm uses FIFO, older materials are flowing into COGS and an older exchange rate applies. Since in the past the foreign currency bought fewer dollars, the gross profit under the temporal method will be higher than that of the current rate method.
dinesh.sundrani Wrote: ------------------------------------------------------- > Talking a quick shot at it. > > COGS -temporal - HR > > COGS - All Curr - CR > > LC appreciates -> HR < AR < CR > > COGS(AC) > COGS(T) > > A??? COGS - All Curr - WA , why CR ?
v.raghavan Wrote: ------------------------------------------------------- > dinesh.sundrani Wrote: > -------------------------------------------------- > ----- > > Talking a quick shot at it. > > > > COGS -temporal - HR > > > > COGS - All Curr - CR > > > > LC appreciates -> HR < AR < CR > > > > COGS(AC) > COGS(T) > > > > A??? > > > COGS - All Curr - WA , why CR ? Yes, that was a mistake. It should have been AR for COGS in All Current.
Sorry Dinesh, I can not say that after this question. Which of the following statements is most accurate with respect to accounting for inventory and cost of goods sold (COGS) using last-in first out (LIFO) under the temporal method? A) Inventory is translated at the historical rate, and COGS is translated at the average rate. B) Inventory is translated at the average rate while COGS is translated at the historical rate. C) Inventory is translated at the current rate while COGS is translated at the historical rate. D) Inventory is translated at the historical rate, and COGS is translated at the historical rate. Your answer: A was incorrect. The correct answer was D) Inventory is translated at the historical rate, and COGS is translated at the historical rate. If using LIFO, units sold during the year are the ones purchased during the year. Under the temporal method, COGS and inventory would be translated at the historical rate
It is my understanding that COGS and Inventory are always remeasured at the “Historical Rate”, but as for calculating what that historical rate is, we often have to use our best judgment (which means assuming even purchases / sales, ie average rate, if no further info is given).