Question on Inventory cost flow assumptions under temporal method of currency translations.

[kos]

Pretty easy question - I feel like I understand this concept, but i feel like the text seems to contradict the logic sometimes. Under the temporal method, the exchange rate used in translation is the Historical rate… got it. But which rate do we use if we are given a specific inventory cost flow assumption (FIFO / LIFO) ? It seems like they just always use the “average rate” when inventory is acquired.
Am I correct in saying that if we are using FIFO – Ending inventory should include most recently acquired items and its “historical cost” should be the more recent exchange rate. (i.e. the exchange rate towards the end of the reporting period) and If we are using LIFO – Ending inventory should include older items and their historical cost should be converted using older exchange rates (i.e. exchange rate at the beginning of the period) ?

 

[S2000magician]

Yes, when remeasuring (temporal method) under FIFO you will use a recent rate to remeasure the value of the inventory and an older (historical) rate to remeasure the value of COGS, and under LIFO you will use an historical rate to remeasure inventory and a recent rate to remeasure COGS.

 

[heshoos]

Hi S2000,
hopefully you get to read my question… regarding this cost flow assumption under temporal method… is what you you said still apply?? I ran into this confusion in the CFAI text… the example illustrates translation methods on page.255 of the multinational operation reading
So the example uses Average rate to translate Canadaco Inventory amount on the balance sheet .. the excerpts indicate that the inventory is valued at FIFO and i was thinking that the inventory should be translated using most recent rates on B/S and a historical rate for COGS.. but the example uses weighted avg rate when inv was acquired…
im confused…. does this mean if the weighted avg rate is given.. use that… otherwise use the logic above???

 

[S2000magician]

Read what you wrote: weighted average rate when inventory was acquired. That’s not necessarily the weighted average rate for the year; it depends on when the inventory was acquired.
The upshot is that they’ll give you the rates you’ll need, and they’ll tell you which ones to use; all you have to do is read the vignette carefully.

 

[heshoos]

I guess im just panicking at minutia… Thanks for the input.

 

[S2000magician]

You’re quite welcome.
I think that you’re not alone in the panicking.