Current Rate Method and Temporal Method

• Local means a country where the foreign subsidiary operates.
• Local currency prices (or local inventory cost): constant → no difference between LIFO and FIFO
• Local currency: ↓ (depreciation vs. domestic/home/base/reporting currency)
• Exchange rate (DC/FC)
• C: Current
• A: Average
• H: Historical
• Then C < A < H

Table

Foreign subsidiary	Temporal		Current rate
Revenues	(A)		(A)
COGS	(H)	>	(A)
Gross profit margin = (Revenues - COGS) / Revenues	(A-H)/A	<	(A-A)/A