Which of the following statements most accurately describes a financial effect of translation? A) Use of the temporal method may distort profit margins. B) Accounts receivable turnover ratios are affected. C) The debt/equity ratio is higher under re-measurement if the foreign currency depreciates. Your answer: B was incorrect. The correct answer was A) Use of the temporal method may distort profit margins. Profit margins may be distorted, especially if FIFO inventory accounting is used. why is it not B??
in either method AR is translated at the current rate in either method numerator - sales is at the average rate. sales / ar = AR Turnover ratio will be the same under both methods thus…
ARTO = S/AR = S*AR/AR*CR = same (T or AC)