AYB$340$ Topic $8$ Tutorial Material

Case Study $25\mathrm{.}1($p$804)$

Case A

A Malaysian operation manufactures a product using Malaysian materials and labour. Specialised equipment and senior operations

staff are supplied by its Australian parent company. Reimbursement invoices for these services are denominated in the Malaysian

ringgit. The product is sold in the Malaysian market at a price, denominated in Malaysian ringgit, which is determined by competition

with similar locally produced products. The foreign operation retains sufficient cash to meet wages and day$-$to$-$day operating costs

and further investment needs, with only a very small amount being paid as dividends to the Australian parent. The receipt of

dividends from the foreign operation is not important to the parent's cash management function. Long$-$term financing is arranged and

serviced by the Malaysian operation.

Cose B

A Korean operation is a foreign operation of an Australian company which regards the operation as a long$-$term investment and takes

no part in the day$-$to$-$day decision making of the operation. The operation purchases parts from various non$-$related Australian

manufacturers for assembly by Korean labour. The finished product is exported to a number of countries, but South Korea is the major

market. Consequently, sales prices are mainly determined by market competition within South Korea.

Required

In relation to these cases, discuss the choice of a functional currency for the foreign operations.

Financial Reporting, $4$th ed

Exercise $25\mathrm{.}11(p810)$

On $1$ July $2023,$ Taree Ltd$,$ an Australlan company, acquired all the issued shares of Hastings Ltd$,$ a UK company. At this date, the

equity of Hastings Ltd consisted of the following.

The financial statements of Hastings Ltd at $30$ June $2024$ were as follows.