Isn’t ap turnover = sales/AP? And isn’t sales converted at the avg rate under both current and temporal? AP is considered monetary liability is converted using the current rate under both methods? so if top and bottom are the same…it wouldn’t be affected! Which of the following ratios is unaffected by the choice between translation under the all-current method and remeasurement under the temporal method? A) Accounts payable turnover. B) Quick ratio. C) Current ratio. Your answer: A was incorrect. The correct answer was B) 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.
yes you are correct. The question should have read, " Which of the following is affected…"
The question is correct. First Account Payable turnover , is COGS ( purchases)/Avg Account payable. Account Payable are the same under both methods…but not COGS, it depends on how the inventory was accounted under temporal method…If LIFO,use historical, if acquired thru the year, use WA. Under current, it is always WA. Current ratio…ca/cl…as u stated it does include inventory…which is current rate under current method and inventory under temporal is 'H". So quick ratio is the the answer. ( it includes cash, marketable securities, receivables/CL…all current rate under both methods.
i stand corrected! i completely forgot that sales is on inventory turnover. cogs on ap!!! what are you doing at 417 am!
What would happen if the ocmpany uses FIFO Cogs. then what rate do you use under temperoal?
skip…am on the west…so 417 is actually 117am here…
kellyc319 Wrote: ------------------------------------------------------- > What would happen if the ocmpany uses FIFO Cogs. > then what rate do you use under temperoal? Under temporal method, you use historical exchange rate for COGS; under all current method, you use average exchange rate for COGS. So your COGS would be using inventory at an earlier rate for the year unless inventory is acquired and sold throughout the year, which would make it weighted average.