question 4

Question 4 (16 marks) Part A. Explain "functional currency" and suggest one indicator that an entity may consider to determine its functional currency. (4 marks) Part B. On 1 December 2020, Company EX, with a functional currency and presentation currency in HKD, sold and deliver an inventory to a customer in Paris at EUR10,000. EX has received the money in 2021. Exchange rate of EUR/HKD was 8.80 and 8.95 respectively on 1 December 2020 and 31 December 2020. Required: Prepare the journal entries for EX in HKD for the year ended 31 December 2020. (4 marks) Part C. Company PriceBest established a wholly-owned Company Sugar on 1 January 2020. Sugar has a functional currency in USD but PriceBest requires Sugar to use SGD as its presentation currency. Company Sugar Statement of Financial Position As at 31 December 2020 USD Property 21,000 Cash 129,000 Inventory 220,000 Accounts receivable 80,000 450,000 Share capital 220,000 Retained earnings 220,000 Accounts payable 10,000 450,000 USD/SGD spot rates 1 January 2020 1.25 31 December 2020 1.38 Average for the year of 2020 1.29 Required: Translate Sugar's statement of financial position as at 31 December 2020 from USD to SGD using the closing rate method. (8 marks) [Total for Question 4: 16 marks]