In Q.2 in the attached image, why shouldn’t the answer be A (Inventory will be more in EUR terms in the holding companies balance sheet)?
Answer given is B.
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the focus area here is that the local currency of the subsidiary is falling.
so when you calculate the GPM under Temporal method= ( Sales-COGS↑) ↓
COGS will be converted at Historical Rate, which will be higher due to falling local currency.
when you calculate GPM under Current method =(Sales – COGS↓) ↑
COGS will be converted at Average rate, which will be lower due falling local curreny.
Hence the GPM will be higher under the Current method.