Temp/AC method always get me. I notice for COGS, and temporal method, it’s not as easy as finding the COGS in the I/S and multiple that by Historical Rate. It’s rather determined by a mix of rates under LIFO or FIFO. Anyone else having issues doing the COGS portion (temp/ac method)? What’s your approach when calculating the COGS, ie Temp Method…
I have drilled into my head it is historical for temporal and average for all current …try not to complicate things much beyond that if I can help it!
For temporal method expenses related to NonMonetary assets are found by translating at the same rate used to translate the asset so for COGS you translate at the same rate used for the inventory sold. For companies that buy their inventory over time this would mean using many different historical rates (not just one average historical rate; though as a sidebar an ave. rate can be used under certain circumstances). Depending on whether FIFO or LIFO is used you would use those corresponding exchange rates. The easiest way I’ve found is just writing out on a piece of paper the inventory that was sold, exchanging each piece individually and then adding them together. Like this: ____Inv____xchange rate____COGS CAD 1000____2.00_________USD 2000 CAD 500_____1.50_________USD 750 CAD 2000____1.00_________USD 2000 Total: CAD 3,500______________USD 4,750
If the question says purchased and sold evenly throughout the year, all you need is the weighted average rate.
Just for clarification, does the following hold true? Temporal Method: Inventory purchased historically = Inventory on BS translated at historical rate and COGS translated at historical rate. Inventory purchased recently = Inventory on BS translated at current rate and COGS translated at current rate.
above scenarios are not possible. Inventory Historical rate, COGS current Rate -> LIFO Inventory Current Rate, COGS Historical Rate -> FIFO Both at Average Rate -> Weighted average, or (bought and sold evenly thro’ year).
cpk123 Wrote: ------------------------------------------------------- > above scenarios are not possible. > > Inventory Historical rate, COGS current Rate -> > LIFO > > Inventory Current Rate, COGS Historical Rate -> > FIFO > > Both at Average Rate -> Weighted average, or > (bought and sold evenly thro’ year). Thanks cp.
CPK - you’re diagram explained it all! Only if the CFA books were full of pictures, diagrams, and comic strips, it’ll make studying a hell lot easier.