Temporal/Current Method

Can someone pls. shed some light on some of the specific questions that I have? 1) I was doing this problem where they had asked to translate the combined value of common stock and paid up capital using current method: I used the current rate and I got it wrong. This is the explaination that was given: Because the operations are independent from the parent, the all-current method will be used. Common stock should be accounted for at the historical rate—the rate in effect when it was issued. The value is 0.37 × 150,000,000 = $55,500,000. I checked up on Schwser book 2 pg. 243 and in the table they have told us that current method uses current rate to translate equity as a whole. So wtf is goin on here? 2) This statement got me: When using FIFO and the temporal method we assume that inventory is bought and sold evenly throughout the year and thus the appropriate historical rate to use for cost of goods sold (COGS) is the average rate which is also the rate used for COGS with the current rate method. On the same table, the COGS under temporal method uses historical method. WTF is goin on?? I am getting irritated with all the BS

  1. i am not very clear about it but what i can tell you is that although common stock is measured at historical rate , the CTA makes the equity be valued at current rate
  1. for temporal method when they don’t specify when invetory was bought and what was the rate you assume it was linearly bought during the year therefore the historical rate is the average rate

A1. If Common stock is separately listed then you HAVE TO use the rates that were prevaling on the stock issue/purchase date (i.e. some Historic Date) A2. If Purchasing of the inventory happened evenly throughout the year, then you indeed have to use the Avg Rate.

for 1. the CTA is called a plug value - adjusts equity to current rate

for the second one read the statement under temporal, if using fifo and assuming even sales it is valued at the historical rate which is estimated as the avg rate for the period.


sparty I think the confusion about the first one comes from this In schweser they say if you have to translate SHAREHOLDER’S EQUITY as a WHOLE - that is net income, dividends , and common stock, apic etc COMBINED…THEN you can just use the current rate. It’s sort of like a plug figure - because all the other balance sheets accounts have been translated at the current rate…so even this one would have to - for sake of balancing… BUT if you have been given common stock, dividends, net income separately, and are asked to translate any of them individually, then you use the respective rules of common stock - historial dividends - when they were paid net income - average rate For the Second Question - everyone else’s explanation is correct. If inventory is bought througout the year - it kind of becomes irrelevant if it’s LIFO or FIFIO - for COGS you just use the average rate for the year. Hope that helps

Yup…makes so much more sense…I wish schweser explains this sh!t like u guys do,

well that’s why we earn the big bucks

^^ hahahha…speak for yourself…i’d like to be earning more :wink:

mumu trust me you don’t want to make as much as me. you’d be starving… good for me I don’t have dependents