Just a quick question. I get confused with inventory in temporal method. I know for PP&E we just use historical cost, but for inventory what does it really mean when it says use “when acquired rate”? So what rate do we use for FIFO and LIFO? Also, if in the question it says acquired evenly through the year, we will use average rate regardless of FIFO or LIFO right? Can anyone answer above two questions also in terms of COGS? Thanks in advance.
Usually 1 of 2 things; 1) they give you the acquired rate - ex-rate when ivnentory acquired 2) weighted avergage throughout the year so you calculate inventory on which ever applies FIFO and LIFO is the way inventory is represented in COGS and ending inventory. use either 2 mentioned above, though will have different affects based on ex-rate changes. I.e. FIFO, with increasing ex-rates, would see COGS underestimated (as acquired with lower ex-rates) whilst ending inventory would be a good representation (acquired with current ex-rates). LIFO with increasing ex-rates, would see bad ending inventory figures, though quality COGS figures. Hence, assuming increasing ex-rates, FIFO is best for the BS and LIFO is best for the IS. hope that helps. grab a few examples and play with the figures.