(a) A foreign operation harvests pineapples that are shipped to Australia for processing at the Australian parent...
Question:
(a) A foreign operation harvests pineapples that are shipped to Australia for processing at the Australian parent entity's canning facility. All senior personnel at the foreign operation are parent entity employees. Monthly invoices for pineapples supplied to the parent are denominated in US dollars. The parent entity pays these invoices with US dollars obtained by selling its finished product to US customers. Payments to the foreign operation cover all running costs but long term financing is provided by the parent entity.
Required:
In relation to the above case, briefly discuss which currency you regard as the functional currency? Offer reasons for your answer.
(b) Antonio, a company operating in Italy, is a wholly owned subsidiary of Plane Ltd, a company listed in Australia. Plane Ltd formed Antonio on 1 July 2015 with an investment of A$310,000. Antonio's records and financial statements are prepared in Italian Lira (IT L). Antonio has prepared the following financial information at 30 June 2016.
Required:
The functional currency of Antonio is Italian Lira and the presentation currency is Australian dollars. Translate the financial statements of Antonio. into the functional currency. You are expected to provide the relevant journal entries and a set of Statement of Financial Position and Statement of Profit or Loss and Other Comprehensive Income presented in the functional currency.
Advanced Financial Accounting
ISBN: 978-0137030385
6th edition
Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay