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QUESTION 4 Many Malaysian companies have ventured into foreign currency operations either by setting up or acquiring foreign subsidiaries, or by conducting their transaction and

QUESTION 4

Many Malaysian companies have ventured into foreign currency operations either by setting up or acquiring foreign subsidiaries, or by conducting their transaction and other operations in currencies other than Malaysian Ringgit. Globalisation has to a great extent rendered irrelevant to the location or country in which an entity operates. For example, a Malaysian company may set up a subsidiary in Indonesia where the export sales are mainly in US dollar. At the same time the Indonesia subsidiary may be also taking a USD loan. IAS 21 The effects of changes in foreign exchange rates outlines how to account for transactions in foreign currencies and foreign operations, and also how to translate financial statements into a presentation currency.

REQUIRED:

  1. In accordance with IAS 21, explain the term functional currency and discuss FOUR (4) main factors that must be considered in determining the functional currency of a foreign operation as to whether it is the same as that of the parent.
  1. marks)

  1. Interpret the term presentation currency in accordance with IAS 21 and explain whether presentation currency must be the same as functional currency for the example stated above.

(6 marks)

  1. Explain TWO (2) situations whereby the exchange differences arise during the period are allowed to be excluded in the group income statement.

(4 marks)

(Total: 25 marks)

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