Is it true that under temporal method, COGS and Depreciation will be translated using historical rate, regardless of LIFO or FIFO? Thanks.
Depriciation will always transfer at historical rate. No issues over there. The problem will be with inventory and COGS. As mentioned in another thread: This was written by a AF poster: Temporal Method: - If FIFO, the COGS are the oldest stuff, and the inventory is the newer stuff, therefore translate COGS @ your historical inventory cost, and B.S. inventory at a more recent cost (current rate if you just bought all of your inventory in stock for example). - If LIFO, opposite. http://www.analystforum.com/phorums/read.php?12,1144598,1144649#msg-1144649 Go through the thread.
hopefully the already COGS rate translated into the currency you want will already be given in the question.
BS related items on the IS are translated at the rate you translated the BS item at, right? So depreciation would translate at same rate you translated PPE or whatever is being depreciated. this is a little nitpicky but doesn’t IFRS give you the ability to carry PP&E at fair value if it can be determined. in that case, and i’ve never seen that case, you’d translate depreciation at rate you translated PPE.
They’ll probably give you some qualifying statements on the exam in regards to when the inventory was purchased, so you can use that as a clue as to what rate to translate it at.
For the test I would always translate PPE at the average rate, I doubt they would throw a PPE curveball at you. different translations of fair vs book PPE values are not mentioned in the book - at least not that I remember. In real life however, this might be something to think about. most of this stuff is up to the interpretation of the analyst, so I say go with your gut. I mean Sharpe was probably using his risk measurements way before it was incorporated into normal practice. It may not be normal practice yet, but if you have a justifiable reason for translating PPE at a spacific rate it may just give you that edge over other analysts doing it “by the book”
FinNinja Wrote: ------------------------------------------------------- > For the test I would always translate PPE at the > average rate, I doubt they would throw a PPE > curveball at you. different translations of fair > vs book PPE values are not mentioned in the book - > at least not that I remember. don’t you mean historical rate? PPE is translated at historical rate, non-monetary
Yes, PPE would be at historical rate on Bal Sheet, I was thinking of a Schweser Q that got me mixed up - you are correct. Damn that Schweser!