A foreign subsidiary uses the first-in first-out inventory method. The following inventory balances are given at December 31, 2011 in local currency units (LCU):

Compute the December 31, 2011, inventory balance using the lower of cost or market method under the temporal method.

Question

A foreign subsidiary uses the first-in first-out inventory method. The following inventory balances are given at December 31, 2011 in local currency units (LCU):

Compute the December 31, 2011, inventory balance using the lower of cost or market method under the temporal method.

Quizplus · Accepted Answer

Under the lower of cost or market method, the inventory value is recorded at the lower of its historical cost or replacement cost. In this problem, the historical cost is the FIFO cost of LCU 3,475,000 and the replacement cost is the LCU 457,600, which is the market value. The lower of the two is LCU 457,600, which is translated to $457,600 using the exchange rate of 0.01.

A Foreign Subsidiary Uses the First-In First-Out Inventory Method