Which of the following ratios is unaffected by the choice between translation under the all-current method and remeasurement under the temporal method? A) Quick ratio. B) Accounts payable turnover. C) Current ratio. Your answer: B was incorrect. The correct answer was A) Quick ratio. The basis for using the all current method is when Functional Currency is NOT the same as Parent’s Presentation (reporting) Currency. The basis for using the temporal method is when Functional Currency = Parent’s Presentation Currency. All of the components of the quick ratio (cash and cash equivalents, accounts receivable, and accounts payable) are converted at the same rate under both methods so the ratio is unaffected by the method. The current ratio is the same as the quick ratio except it also contains inventory which is translated at the historical rate with the temporal method and at the current rate with the all-current method. IS THIS QUESTION WRONG? EVEN A/P TURNOVER IS “SAME”, ISN’T IT?
AP Turnover is COGS/AP. So it will change bcos COGS changes Current Ratio - contains inventory - so it will change. Quick Ratio = CA - Inv / CL - so it will not change.
cogs!!! of course. NOT sales/ap, its COGS/ap…this has been posted before and i still didnt remember it
I thot its sales/AP… thnx a lot
Used to be COGS/AP (2007 CFAI FSA) - but now they have changed it in the text to Purchases / AP. So I guess it will be the same whether temporal or current rate on both sides… (and schweser needs to do an update).
The only turnover ratios that have sales on top are total asset or fixed asset turnover and accts rec’ turnover. Hope that helps.