Having a bit of trouble grasping this one… How does the use of FIFO/LIFO under the Temporal Method, affect the profit margin? Inventory is always translated using the avg balance… Any thoughts?
Under the Temporal method, inventory and COGS are non-monetary and translated at the historical rates. See chart on page 285
I struggled with it, and posted something about it here: http://www.analystforum.com/phorums/read.php?12,1215446
thanks man, that is very helpfull, some of these questions are really tricky So is it fair to say if the FC strengthened, FIFO will give you a higher net income? and when FC weakens LIFO will give you a higher net income? Using the historical rate in each case would give the lowest COGS translation.
I’m not sure, but my understanding is that you apply COGS in a pure historical context. This means that you have to look at the exchange rates applicable to each item that was sold. If you’re using LIFO, you would compute COGS by applying more recent rates. As I understand it, the calculations could be very tedious and time consuming. So far, the examples in the text have simplified the problem.
That is my understanding as well thanks Robert… originally the FIFO/LIFO really confused me.