Can someone double check this? i think the explanation is wrong, but the answer is right. The U.S. dollar has been appreciating relative to the local currency over the past year. The use of the temporal method to translate a foreign subsidiary’s financial statements to U.S. dollars will most likely have which of the following effects on the fixed-asset turnover ratio (S/FA) relative to what the ratio would have been without the effects of translation assuming no new fixed assets were purchased throughout the year? A) There will be no effect on the ratio. B) The ratio will fall. C) The ratio will rise. The correct answer was B) The ratio will fall. Since the dollar is appreciating the local currency is depreciating thus each foreign currency unit is buying more dollars in the past relative to the present. Fixed assets are remeasured at the historical rate and sales are remeasured at the average rate under the temporal method. Since the historical rate is buying more dollars relative to the average rate, the denominator is staying the same whereas the numerator is getting smaller thus the ratio is falling. I think they confused the numerator and denominator. the denominator(FA) is the one that is changing, wheras the numerator(sales) is the one staying the same since it’s using historical?

no, they’re right. denominator stays the same b/c it’s the historical #… so it is translated at the old historical rate (no change). the numerator is translated at the average rate and since $USD is appreciating vs local currency, the numerator is falling. i’m ok with their answer here.

That makes sense bannisja. But is that correct?

Gotta be B on this and yea their description is totally correct.