# Temporal Method Net Income

I know this question is easy, but I’m confused (definitely not the first time) Net income Current Rate = average Net income Temporal Method = ???

MIXED… REMEMBER the Gain/Loss translation adjustment which is on the Income statement also plays into the mix. You first need to figure the NI proposed figure using the RE Plug figures from the Balance sheet - then trace the NI after calculations into this number using the adjustment figure. In short – there is NO ONE ANSWER. Could be higher or lower – you may have a gain or a loss.

I see… I need to study this material for a couple more hours before I can even come close to posting another question.

Look at it this way: Temporal: LC-> FC=PC Start with Balance sheet. Monetary assets + Liabs: Current Rate Non Monetary assets: Inventory + Fixed Assets + Accumulated Depreciation = Historic Rate Capital Stock = Historic as of issuance Dividends : Historic = Date of Payment. Based on all of this - you get RE End figure. You should be provided a RE Beginning Figure. RE End = RE Begin + Net Income (Translated) - Dividends (Converted figure) In most problems - you would have that the company is new, just started accounting with this method – in that case RE Begin = 0. From this - you get the Net Income (Translated) number. Now go to the Income statement COGS, Depreciation --> Historic rate Sales, and all other expenses - Average Rate. Arrive at the Net Income from operations figure… Remember this is NOT the final Net Income figure. Above Net Income + Translation gain / loss = Net Income (Translation) from the balance sheet. You are now DONE… with the TEMPORAL METHOD.

thanks

fucking amazing. When I get rich, I am going make cpk my partner to work with me analyzing financial statements. None of you can have him/her

cpk, thanks man… i actually took the print out of your post. I will stick tht into schweser notes… This is a nice summary.

> Now go to the Income statement > COGS, Depreciation --> Historic rate cpk, somewhere it says that if inventory is purchased throughout the year, then COGS will be based on weighted average, not historical, correct?

Yes. that is a simplifying assumption. Golden rule: use historic For exceptional case: Inventory bought throughout year being a simplifying assumption - use the weighted average rate.

Dreary Wrote: ------------------------------------------------------- > > Now go to the Income statement > > COGS, Depreciation --> Historic rate > > cpk, somewhere it says that if inventory is > purchased throughout the year, then COGS will be > based on weighted average, not historical, > correct? hmmm that’s right…

charu and dreary – what would you use if that were not specified? (That inventory was bought and sold evenly? ) check Exhibit 4 on Page 161 in the CFAI book – says use Historical Rates. (bottom of the table, right most column, 2nd last line) also read the 2nd last paragraph on page 159. and they say on the top – average rates are used for practical reasons. Also read pg 191 on Schweser. “Inventory and COGS under the Temporal Method”. (esp. pay heed to the Professor’s note in that section).