# Inventory, COGS - temporal method

Just wondering if someone can help me out with this real quick. All-current method: Inventory at current rate and COGS at average rate - this I have no problem with Temporal method: LIFO - COGS at average rate and Inventory at historical rate FIFO - COGS at historical rate and Inventory at average rate I’m a little confused about the temporal method. The above is assuming that purchases are steady throughout the year. From doing a couple Schweser problems, it looks like that’s what they did for LIFO. For FIFO, pretty sure about Inventory, but not too sure about COGS. Would COGS be stated at historical or average? Thanks for the help.

For the Temporal Method - COGS & Inventory should be remeasured @ the historical rate. This is just one of the things you have to remember. Trick - For all mentary assets (cash, account payable, recievable, long-term debt) you are going to translate same way as current rate method. all non-monetary assets will be translated at historical. Only sales and expenses are translated at avg rate on the income statement. Dep, COGS, etc. will be translated at historical.

> For the Temporal Method - COGS & Inventory should be remeasured @ the historical rate. Only if all inventory was purchased at one time, then you use that rate (historical). Then if goods were sold at different times, you use weighted average, so inventory at historical but COGS at w.a. under temporal method.

Could someone confirm what I said above because I’m seeing conflicting interpretations?

newsuper (I started doing your question only to find it was incomplete, but hey it was worth the probing). To summarize (read carefully and chime in, I’m not entirely sure): 1) If inventory was bought and sold throughout the year =====> use weighted average for both inventory and COGS (whether LIFO or FIFO). 2) If inventory was bought at beginning of year only, but sold throughout the year =====> I think logically you should use historical for inventory and weighted average for COGS, regardless of LIFO or FIFO. Based on that, it is not clear when LIFO versus FIFO would make a difference!

Dreary, I agree with #1. However, I believe #2 should read like this: If no specification regarding inventory purchases (assumed purchased at one time) OR all inventory purchased at one time: ------->COGS re-measured at HISTORIC RATE

They should have provided a table for this! But again, where does FIFO versus LIFO come into play? Should we assume that if FIFO is used for inventory, then use w.a. for inventory and for COGS? All the time? Should we assume that if LIFO is used for inventory, then use historical for both inventory and COGS? Regardless of when inventory was bought/sold?

Go back to first principles. and interpret Historic accordingly, in the absence of any information about uniform sales / purchases through out the year. FIFO - based on movement of inventory - COGS will be the oldest pieces going out. So Historic COGS price is the HISTORIC PRICE. Ending Inventory is the latest Inventory. So HISTORIC INVENTORY = CURRENT PRICE. LIFO ==== COGS has latest pieces that were bought that are used. So HISTORIC COGS = CURRENT PRICE End Inventory = Oldest inventory So Historic INVENTORY = HISTORIC PRICE.

cpk, could you map that to the temporal method? so, for example, with FIFO: > FIFO - based on movement of inventory - COGS will be the oldest pieces going out. So Historic COGS price is the HISTORIC PRICE. **** Are you suggesting that COGS will be translated using HISTORIC rate? Ending Inventory is the latest Inventory. So HISTORIC INVENTORY = CURRENT PRICE. **** Are you suggesting that inventory will be translated using CURRENT rate? That would not be true for temporal.

I think CP is saying that under temporal, COGS LIFO will be close to (but not necessarily = to) the current rate and likewise for FIFO ending inventory. The question that newsuper referenced said to assume even purchases and sales were even throughout the year so in this case the average IS the historical rate. Anyone buying this?

… yep …

the book says so too. read the 3rd paragraph in the book on page 159. The historical exchange rates used to translate inventory and COGS under temporal method would differ depending on the Cost flow assumption - FIFO, LIFO, or average cost used to account for Inventory. Ending inventory is translated at the exchange rate that existed when the inventory assumed to be still on hand at the balance sheet date (using FIFO or LIFO) was acquired. If FIFO is used - Ending inventory is composed of recently acquired items and and thus inventory will be translated at relatively recent exchange rates. If LIFO is used - ending inventory is composed of older items - and inventory will be translated at older exchange rates. The weighted avg. cost - is when inventory is carried at wtd avg cost. Similarly COGS is translated using the exchange rates that existed when inventory items assumed to have been sold during the year (using FIFO or LIFO) were acquired.

The devil is in the detail, cpk and others. Temporal Method: Insert below CURR, HIST, or WA … Ending Inventory Adj…COGS Adj 1) LIFO inventory… ???.. ??? 2) FIFO inventory… ???.. ??? 3) W.A. Inventory… ???.. ??? I’ll give it a try: … Ending Inventory Adj…COGS Adj 1) LIFO inventory… HST…WA 2) FIFO inventory… W.A. or CURR…W.A. or CURR 3) W.A. Inventory… W.A…W.A.

HST HST IN ALL CASES when no information about the average flow is provided. FIFO Historic Inventory = CURRENT Rate - because current inventory is what is left. Historic COGS = Historic Rate - because that is what was used in the COGS. LIFO Historic Inventory = Historic Rate - because ancient inventory is what is left. Historic COGS = CURRENT Rate - because that is what was used in the COGS. When they say company bought and sold uniformly - then use the weighted average rate. When they say company uses the Weighted average method, use the weighted average exchange rate. This is the definitive detail.

Great, I’ll try to get back to you with examples violating the above.

Sorry to drag this out further, but I am correct in assuming the following: LIFO Under the Temporal method, if no indication is given regarding when inventory was bought/sold, COGS are translated at the historic rate. The COGS basic principles still apply, and thus, the COGS represent current prices. Inventory translated at the historic rate would thus represent historic inventory prices as well. However, if told inventory was evenly bought and sold, then COGS are translated at the average rate. All other assumptions are now just average prices. FIFO Under the Temporal method, if no indication is given regarding when inventory was bought/sold, COGS are translated at the historic rate. COGS prices now represent historic prices (basic COGS principle again). Inventory translated at the historic rate would now represent current prices. — Is this correct?

Dreary we do not need examples violating anything above. This is the understanding from all the readings that I have gotten. This is what both the text book and other material say…

This sh!t is so intuitive. …ok now to confuse even more - Tell me, if told inventory was evenly bought and sold, what will be ending inventory be translated as under temporal method using FIFO inventory accounting

I would think average should be used… bcos that is the overriding factor.