COGS would be at a rate of 1.40 … end of year rate. the income statement where the COGS is present, and the Ending Inventory on the balance sheet are indelibly connected by the Retained Earnings piece on Equity - and you would have either a gain or a loss entry going into the Net Income under the temporal method that would even these numbers out, year or year. Just take that as the learning to go with and proceed.
I’m lost. The text says that ending inventory on the b/s is translated using rates that existed when inventory items assumed to still be on hand at the b/s date were acquired. LIFO inventory was acquired (in this example) when the rate was 1.00. Inventory on the balance sheet is thus translated at 1.00, right? The text also says that COGS is translated using rates that existed when inventory items assumed to have been sold were acquired. This passage suggests that you convert COGS by looking at the historical rates applicable to the inventory items that were sold. Thus, if LIFO inventory was sold, the rate on those pieces would be 1.00. But you can’t survive entirely on beginning inventory – some items had to have been purchased and sold in the same accounting period. I’m not clear on how these items – the items that were not a part of beginning LIFO inventory – are converted.
this is precisely what I wrote about 3 threads ago. You do not look at which piece of the inventory it came from. All that matters is what survived at the end and the rate at the end. (for LIFO). If your outlook were only 1 year as the period in time where you are doing this adjustment / calculations with the exchange rates - then you would keep looking at where that piece of inventory came from. But this is a on-going concern problem, with exchange rates between parent company and its subsidiary changing constantly. The right answer is the 1.40 figure - based on 1$ beginning rate and 1.20 Average exchange rate - end of year rate is 1.40. Your LIFO Inventory was valued at the beginning of year rate this period. Your COGS at 1.40. Now in the next year - your Inventory would be valued at 1.40, and if that year’s end of year rate was say 1$ (to have the same avg of 1.20) your COGS next year would be at 1.00$. maybe in the first year you had a net loss - which was adjusted upwards (bumped up) by a translation gain figure, in the next year you had a net gain, adjusted down by the translation loss. (Both translation loss and gain in temporal are in the Income statement itself). does this make sense? you are probably obsessing too much on this one aspect. Please note this has not been tested in the past 3 years (at least that I know of).
trying to work through your examples (I appreciate your staying with this)… I think you’re saying that COGS (in the case of LIFO) should be the “current rate” as of the balance sheet date. But the text says that COGS is translated using rates that existed when inventory items assumed to have been sold were acquired. What is meant by “assumed to have been sold?” Doesn’t this passage point in the direction of historical rates?
I pulled the following out of Schweser, which partly explains some of what you’re saying: “Under LIFO, EI consists of older costs; thus inventory is remeasured with older rates. LIFO COGS, however, consists of costs from the most recently purchased goods; thus, COGS is remeasured based on more current exchange rates.” Okay, got that. It’s logical, it makes sense. What I don’t get is why ending rates, per se, would be used to convert COGS. If rates increased over the course of the year, don’t you have to look to that changing rate structure?
when are you doing the comparison / combination of statements? what is the rate at that point in time… is all that matters. You have a beginning rate, average rate, ending rate. These are kind of point in time measurements. Those are what are used to compute and translate various balances on either Income statement or the Balance sheet of the sub before combining with the Parent for financial statement presentation. Additionally - with the going concern approach - unless there is a big time cooking of books - the effect of translations of currency should even out eventually. In the case of LIFO COGS - the last bought piece - assuming happened at the very end of the year (they never talk of whether the piece survived from a previous bad year, it was bought of 1st Jan of this year, or on 31 Dec) – would have been bought at the ending FX exchange rate - so that would be used on COGS. If the last bought piece went into COGS - the first bought piece (at the beginning rate) is what is in Ending Inventory. This kind of sets the tone up for everything that follows there after. It is kind of a simplifying assumption.
You been around AF a bit. What did it take for you to become eligible to sit for L3?
what do you mean? other than passing the two levels with two attempts at each level (bcos life got in the way)… what more are you asking?
Robert A Wrote: ------------------------------------------------------- > You been around AF a bit. What did it take for > you to become eligible to sit for L3? what you trying to say fool? CPK is the man 'round these parts
You speak from experience and commitment. Interested to know about your path. cpk123 Wrote: ------------------------------------------------------- > what do you mean? > > other than passing the two levels with two > attempts at each level (bcos life got in the > way)… > > what more are you asking?