If the functional currency is the local currency of a foreign subsidiary, what exchange rates should...

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If the functional currency is the local currency of a foreign subsidiary, what exchange rates should be used to translate the

business accounting

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Answer 1

Answer #1

The financial position and performance of an foreign subsidiary whose functional currency (not a currency of a hyperinflationary economy) shall be translated into presentation currency of the parent using the following procedures:

(a) Assets & liabilities of each balance sheet are translated using closing/current rate at the date of that balance sheet;

(b) Income and expenses of profit and loss a/c shall be translated at exchange rates at the dates of the transactions or using average rates (appropriate when exchange rates dont fluctuate significantly)

In the given question, Both Equipment and Inventories are assets therefore shall be translated using current rate at the Balance sheet date. Depreciation is an expense therefore shall be translated using average rate.

Hence, Option A

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Answer 2

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