# Inventory/COGS Temporal Method

Under the temporal method: If all we are given is the historical exch rate for BegInv and EndInv (and no specific exch rate for COGS), the proper way to determine the COGS rate is to use the inventory equation: BegInv + Purch - EndInv = COGS. And so you can’t necessarily assume that the COGS is just the average exch rate for the year? Is this the right way to approach? (this comes up in QID 87354)

COGS is historial in temporal

Right, but if you’re not given the historical rate explicitly what is the proper way to derive it? It could end up being an avg rate depending on the firm’s cost flow assumption.

historical means the rate at which inventory was purchased. if you’re given different exchange rates for inventory purchases at various times, then you have to use those specific rates to figure out cogs.

didn’t this question come up recently? Inventory and COGS, when using temporal, can be remeasured at 'relatively recent exchange rates (i.e., current for FIFO), ‘older exchange rates’ (i.e., historical for LIFO), OR Weighted average. FIFO-current LIFO-historical weighted is inventory was acquired at weighted See CFAI text, Vol 2, page 159.

Here is an excerpt from the question I am referring to: (QID 87354). * Inventory is accounted for under the last in, first out (LIFO) cost flow assumption, with a slow rate of turnover. * The inventory in the January 1, 2001, Balance Sheet was acquired on January 1, 2001. * Exchange rates: January 1, 2000 \$0.14/M peso January 1, 2001 \$0.12/M peso June 30, 2001 \$0.11/M peso (this is the 2001 average rate) December 31, 2001 \$0.10/M peso * Inventory: January 1, 2001 15,000,000 December 31, 2001 15,000,000 * COGS: December 31, 2001 (45,000,000) QUESTION: The Cost of Goods Sold for Grande, Inc., for the year ended December 31, 2001, expressed in U.S. dollars is: A) \$4,950,000. B) \$5,400,000. C) \$5,250,000. The correct answer was A. Both the beginning and ending inventory under LIFO cost flow assumptions and a slow inventory turnover are translated at the \$0.12 rate as of the date the original inventory was acquired, January 1, 2001. Because beginning and ending inventories expressed in Mexican pesos are equal, the purchases for the year will equal the Cost of Goods Sold, which is remeasured at the average cost of acquiring the goods during the year: \$0.11. (45,000,000 * \$0.11) = \$4,950,000. ****My question is: if you’re supposed to use the historical rate from when the inv was purchased, then why aren’t you using \$0.12 instead of \$0.11? I chose B (45,000,000 COGS x \$0.12 rate = 5,400,000)

If you have a COGS expense, and inventory stayed the same, then obviously there were purchases made during the course of the year. Since it does not specify any dates of purchase other than the original Jan 1 20x1, then it is assumed they were purchased evenly throughout the year.

Wow. good q