Question #28
Reading: Reading 10 Multinational Operations
PDF File: Reading 10 Multinational Operations.pdf
Page: 14
Status: Correct
Correct Answer: A
Question
Which of the following statements regarding the foreign currency translation under US GAAP is least accurate? The functional currency is the:
Answer Choices:
A. subsidiary's local currency for self-contained, independent foreign subsidiaries
B. parent firm's home currency for self-contained independent foreign subsidiaries
C. parent firm's home currency if the foreign subsidiary operates in a country with high inflation
Explanation
The basis for using the current rate method is when Functional Currency is NOT the same
as Parent's Presentation (reporting) Currency. The basis for using the temporal method is
when Functional Currency = Parent's Presentation Currency.
This statement is incorrect, both remaining statements are correct regarding rules that
govern the determination of the functional currency of subsidiaries.