Explanation:
Under the current rate method:
For gross profit margin:
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.
Ultimate access to all questions.
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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