Confusion does not allow me to finish Reading quickly. CFAI Q#2 is hard to digest. I am getting FIFO right but selection of current method is due to difference in currencies or just because of reason that under current method gross profit is higher. I have skimmed reading but there is nothing in reading giving idea about impact on GP due to method selection.
P.S: For this question, I understand the following from scenario:
Local currency = Hryvnia
Functional currency= Euro
Presentation currency = Euro
Some suggestions to improve understanding for selection of method.
Under the Current Rate Method, Revenue and COGS are multiplied through by the Average Rate, so no change in Gross Profit Margin (since in effect you are just multiplying by 1).
Under the Temportal Method, Revenue is multiplied by the Average Rate, but COGS is multiplied by the Historical Rate. Since the FC is depreciating, you will end up with lower Revenues but not a lower COGS, when translated into the PC. This will lower the numerator of the ratio and therefore will create a worse GPM than relative to Current Method.
Hope this makes sense, best way to see it is to put some examples together in a spreadsheet.