FSA Question - Temporal Method

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The U.S. dollar has been appreciating relative to the local currency over the past year. The use of the temporal method to translate a foreign subsidiary’s financial statements to U.S. dollars will most likely have which of the following effects on the fixed-asset turnover ratio (S/FA) relative to what the ratio would have been without the effects of translation assuming no new fixed assets were purchased throughout the year?
A) The ratio will rise.
B) The ratio will fall.
C) The effect on the ratio is indeterminate.
D) There will be no effect on the ratio.
 
B. I think asset value won’t change but sales will fall.
 
Sales- using temporal you use ave rate. so if appreciating $USD, your ave number is going to be less than the historical.
FA- measured at historical so no change.
I’m with you on B.
 
Your answer: B was correct!
Since the dollar is appreciating the local currency is depreciating thus each foreign currency unit is buying more dollars in the past relative to the present. Fixed assets are remeasured at the historical rate and sales are remeasured at the average rate under the temporal method. Since the historical rate is buying more dollars relative to the average rate, the denominator is staying the same whereas the numerator is getting smaller thus the ratio is falling.
***Nice job group. I think it’s easy to get tripped up on this question. It was taught by Schweser a bit different than the question asked (I think) and hence the need to understand more thoroughly (I got lucky by the way). If you read the question quickly, I think it is easy to miss.
 
Just found a question I was going to ask. I can understand the numerator will be higher by using the average rate. However, the Fixed Assets (denominator) is using the historical rate, wouldnt that be a lower number compared to the Fixed Assets withourt the translation? Thanks!
 
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