Question
A Japanese company, Kiku Ltd, is a wholly owned subsidiary of an Australian company. Kiku Ltd manufactures all goods in Japan using local labour but
A Japanese company, Kiku Ltd, is a wholly owned subsidiary of an Australian company. Kiku Ltd manufactures all goods in Japan using local labour but sources its raw materials from the Australian parent. The finished product is sold predominantly in Japan and Australia with the management of the Australian parent determining the sales price. Kiku Ltd has a long-term loan from a Japanese bank. All profits made by Kiku Ltd are remitted back to the Australian parent.
Required:
In relation to this case, identify and explain in detail which currency is the functional currency of Kiku Ltd. Identify (but do not explain) which translation process would be required so that the Japanese operation can be included in the consolidated financial statements of the Australian parent.
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