I always get confused as to whether or not a subsidiary’s gross margin or income would be higher or lower under temporal vs. current or if FIFO or LIFO would show higher gross profit, higher/lower cogs. Any ideas on how to keep it straight? thx.
inflationary environment: FIFO - lower COGS, higher profit, higher inventory. LIFO - higher COGS, lower profit, lower inventory. deflationary environment reverses everything. i’m not sure about temporal vs. current either.
i don’t think we need to be able to compare from temporal vs current, but from original (unadjusted) vs current. and it just depends on whether the foreign currency has appreciated or depreciated in that time. for something like net profit margin (NI/sales) there would be no change b/c both are translated at the same rate (avg rate). however, just net income would be higher under the current method if the foreign currency was appreciating.
Always think the currency terms in the context of the acquirer or the investor. For example if the reporting currency of the investor is in US$, I would convert any currency to per US$ and than compare whether foreign is depreciating or appreciating. If it is depreciating, it will be fifo and current and likewise.