The effects of changes in foreign exchange rates states that where an entity has foreign operations,...

  

Transcribed Image Text:

The effects of changes in foreign exchange rates states that where an entity has foreign operations, such as overseas subsidiaries, branches, joint ventures or associates, it should determine the functional currency of that foreign operation. MFRS 121 The Effects of Changes in Foreign Exchange Rates deals with this issue. Required: Explain the factors which should be taken into consideration in determining whether or not the functional currency of a foreign operation is the same as that of its parent. Blue Ltd is a wholly 100% subsidiary to Malaysian company, Earthy Berhad. Blue Ltd is located in a foreign country and operates a mine. The income of Blue Ltd is denominated and settled in dinars. The output of the mine is routinely traded in dinars and its price is determined initially by local supply and demand. Blue Ltd pays 40% of its costs and expenses in Ringgit with the remainder being incurred locally and settled in dinars. Blue Ltd's management has a considerable degree of authority and autonomy in carrying out the operations of Blue Ltd and is not dependent upon group companies for finance. Required: Discuss and apply the principles set out in MFRS 121 The Effects of Changes in Foreign Exchange Rates in order to determine the functional currency of Blue Ltd. The effects of changes in foreign exchange rates states that where an entity has foreign operations, such as overseas subsidiaries, branches, joint ventures or associates, it should determine the functional currency of that foreign operation. MFRS 121 The Effects of Changes in Foreign Exchange Rates deals with this issue. Required: Explain the factors which should be taken into consideration in determining whether or not the functional currency of a foreign operation is the same as that of its parent. Blue Ltd is a wholly 100% subsidiary to Malaysian company, Earthy Berhad. Blue Ltd is located in a foreign country and operates a mine. The income of Blue Ltd is denominated and settled in dinars. The output of the mine is routinely traded in dinars and its price is determined initially by local supply and demand. Blue Ltd pays 40% of its costs and expenses in Ringgit with the remainder being incurred locally and settled in dinars. Blue Ltd's management has a considerable degree of authority and autonomy in carrying out the operations of Blue Ltd and is not dependent upon group companies for finance. Required: Discuss and apply the principles set out in MFRS 121 The Effects of Changes in Foreign Exchange Rates in order to determine the functional currency of Blue Ltd.

Answer rating: 100% (QA)

When determining the functional currency of a foreign operation such as Blue Ltd in this case several factors need to be taken into consideration Thes... View the full answer