Question

FASB No. 52, “Foreign Currency Translation”, essentially gives to management of a multinational enterprise the responsibility for determining the functional currency of the enterprise’s foreign branches, divisions, and subsidiaries. Required Given that remeasurment from a local currency to the functional currency produces foreign currency transaction gains and losses displayed in the enterprise’s income statement, while translation from the functional currency to the reporting currency generates foreign currency translation adjustments currently displayed as other comprehensive income and presented in the stockholders’ equity section of the balance sheet, is there any incentive for management to determine that the local currency of a foreign entity is not its functional currency? Explain

Answer 1

Answer:

Translation of local currency into functional currency may give translation reserves which are to be remembered for OCI(Overseas citizenship of India) . So ,along these lines ,if the administrations or management motivating forces like incentives depend on profits .There will be no incentives for this translation as it was in OCI(Overseas citizenship of India).

No, the board of management didn't have any incentive for deciding local currency of an outside or foreign entity isn't its functional currency.

The fiscal statements of the entity overall should be set up in a reporting currency of the entity where its greater part of the tasks and operations are continued or in the nation where organization is enlisted or registered.

The functional currency is the currency of the essential financial condition wherein the entity works.

The Reporting currency might be unique in relation to functional currency .

The board of management needs to identify its functional money ,as opposed to simply applying local money as a functional money.