[AnaTG]

Hi everyone!

I am using Becker 2013 for my studies and the Foreign currency accounting chapter of F2 says that when using the remeasurement method on the I/S the balance sheet related items s/b under the historical rate (Depreciation/PP&E; Cost of good sold/inventory & Amortization/bonds & intangibles), however, when giving a specific example on page F2-51 there seems to be a discrepancy on this. The Depreciation expense on the IS is listed under the historical rate and so is its contra account (accum. depr.) BUT the Cost of Goods Sold on the same example is listed under the Weighted average rate and so is its related B/S account Inventories (at cost). Shouldn’t both be listed under the historical rate as per the lecture on page F2-48?

Here is the complete example:

Financial statements of the Kristi Corporation, a foreign subsidiary of the Dollar Corporation (a US company), are shown below at and for the year ended 12/31/year 2. Two examples follow where the statements are first translated using the LCU (local currency unit) as the functional currency (translation method), then the dollar as the functional currency (remeasurement).

Assumptions:

1 – The parent company organized the subsidiary on 12/31/year 1;

2 – Exchange rates for the LCU were as follows:

Dec 31, year 1 to March 31, year 2 = $0.18 (Historical rate)

April 1, year 2 to June 30, year 2 = $0.13

July 1, year 2 to September 30, year 2 = $0.10

October 1, year 2 to December 31, year 2= $0.10 (current/spot rate @ year end)

Weighted Average = $0.1275

3 – Inventory was acquired evenly throughout the year and sales were made evenly throughout the year.

4 – Fixed assets were acquired by the subsidiary on 12-31, year 1.

Sorry if this is too simple but is this an exception to the rule? Let me know if more details are needed to answer this.

Any help is greatly appreciated 🙂

[AnaTG]

I am guessing the answer to this is because in the problem it states that “Inventory was acquired evenly throughout the year and sales were made evenly throughout the year.” otherwise the rule would be to use the historical rate. Anyone please? 🙁

[AnaTG]

Gah, I found the answer, thank Gosh! And it looks like is the right one:

Foreign Currency Remeasurement question

Woo-hoo!

[Iggy1985]

average can only be used for current rate method (functional is local), correct? This page from my old advanced book always helps me with this topic (the paragraph below is related to temporal method (functional is reporting). https://img.photobucket.com/albums/v301/Vixia/rates_zps64eb2a4e.png

edit: nvm, then the next page says this haha

Under the temporal method, COGS must be decomposed into beginning inventory, purchases, and ending inventory, and each component of COGS must then be translated at its appropriate historical rate. For example, if a company acquires beginning inventory (FIFO basis) in the year 2013 evenly throughout the fourth quarter of 2012, then it uses the average exchange rate in the fourth quarter of 2012 to translate beginning inventory. Likewise, it uses the fourth quarter (4thQ) 2013 exchange rate to translate ending inven-tory. When purchases can be assumed to have been made evenly throughout 2013, the average 2013 exchange rate is used to translate purchases:

Beginning inventory in FC x Historical ER (4thQ 2012)

Purchases in FC x Average ER (2013)

Ending inventory in FC x Historical ER (4thQ 2013)

= COGS in FC

No single exchange rate can be used to directly translate COGS in FC into COGS in dollars.

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio
BEC - 82 (5/8/15) Mostly Ninja MCQ, sprinkles of Becker lectures and Ninja Audio
REG - (8/14/15)

[AnaTG]

Thanks Iggy, that is a very handy page you got there, I printed it and glued it to my office wall. 😉 I appreciated your help, thank you so much for taking the time to respond. Cheers!! 🙂

[Author]

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