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Answer: A No
## Explanation Under the **current rate method**: - **Income statement items** (revenue, cost of goods sold, etc.) are translated at the **average exchange rate** for the period - **Balance sheet items** are translated at the **current exchange rate** at balance sheet date For **gross profit margin**: - Gross Profit Margin = (Revenue - COGS) / Revenue - Both revenue and COGS are translated at the **same average exchange rate** Since both numerator (Revenue - COGS) and denominator (Revenue) are translated using the **same exchange rate**, the **ratio remains unchanged** after translation. Even though the Brazilian real has depreciated against the US dollar, the translation process does **not** affect the gross profit margin percentage because both revenue and cost of goods sold are translated using the same average rate, preserving the ratio relationship.
Author: LeetQuiz Editorial Team
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Copacabana SA is the Brazilian subsidiary of a US corporation and its results are translated into USD using the current rate method. In recent years, the Brazilian real has generally depreciated against the US dollar. Does the translation process affect Copacabana's reported gross profit margin?
A
A No
B
B Yes, after translation the gross profit margin is lower than it was before translation
C
C Yes, after translation the gross profit margin is higher than it was before translation
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