Morgan Ltd is located in France and uses euro as its functional currency. In 2018, Morgan Ltd establishes established two entities –Philly Ltd and Queen Ltd. Philly Ltd is located in the US and Queen Ltd is located in the UK. Since their inception, the following transactions occurred:

-Morgan Ltd loaned £2 million each to Philly Ltd and Queen Ltd, and both recognized the advance as an intragroup payable.

-Queen Ltd borrowed an additional £3 million form an unrelated third party. Philly Ltd guaranteed this third-party loan.

-Queen Ltd invested its entire £5 million in building a manufacturing facility to serve the domestic UK market. Queen Ltd intends to repay the loan to the third party from the profit generated through its manufacturing operations (which generate cash flows in sterling).

-Philly Ltd used its £2 million loan from Morgan Ltd to invest in marketable securities in international markets. Its investing strategies are determined by Morgan Company. Philly Ltd does not have any other activities or purposes.

Required:

Determine the functional currency of Philly Ltd and Queen Ltd by referring to IAS 21. You are required to explain and provide justification!

Answer rating: 100% (QA)

Functional currency is that currency which is used for the primary business The ec... View the full answer