Question

Q3. What factors are used to determine a reporting entity’s functional currency? Provide at least oneexample for which a company’s local currency may not be its functional currency.

Q5. Explain the differences between translation and remeasurement.

Answer 1

3. The determination of the functional currency depends on :

• Currency in which the expenses are incurred
• Currency in which funds are generated.
• Country's regulations / market conditions which affect the pricing
• Currency in which cash from operations are earned.
• Currency that affect the pricing of goods sold / services rendered

A company might have outsourced its back office operations to an offsite country. The currency of the offsite operation ( local currency) need not be the functional currency of the company.

5.

Differentiation	Re measurement	Translation
Definition	It is process whereby the financial results are remeasured into the company's functional currency	Process wherein a business unit's result is translated into the parent company currency using an exchange rate
Adjustment impact	The impact is given in the net income	The impact is recorded in the Shareholder's equity
Method Adopted	Temporal Method	Current Rate Method