Question #123
Reading: Reading 10 Multinational Operations
PDF File: Reading 10 Multinational Operations.pdf
Page: 66
Status: Unattempted
Question
Which of the following statements regarding the functional currency under US GAAP is least accurate?
Answer Choices:
A. The functional currency is defined as the primary currency of the economic environment in which the parent firm operates
B. Self-contained, independent subsidiaries whose operations are primarily located in the local market will use the local currency as the functional currency
C. If a firm operates in a country or environment which is subject to cumulative inflation of 100% or more over a three year period, that firm will use the parent's currency as the functional currency
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.
The functional currency is defined as the primary currency of the economic environment
in which the foreign subsidiary operates.