Professional Documents
Culture Documents
Chapter 17 Notes
Chapter 17 Notes
presentation currency
Explain the purpose of translating financial statements from one currency into
another
Two main issues:
1. What currency will be used for accounting in the overseas location
2. Wat currency will be used for preparation of consolidated F/S of entity as a
whole
F/S may be recorded in a foreign currency and translated into AUD for the
purpose of combining those statements with F/S of a related Australian company.
Distinguish between functional currency and presentation currency
AASB121
Types of currencies
Local currency of country in which foreign operation is based
Foreign currency other than functional currency
Functional currency of primary economic environment in which foreign
entity operates
Presentation- - currency in which F/S are presented by reporting entity
Sales
market
s
Expens
es
Indicators pointing to
foreign operations
currency as functional
currency
Prices are not primarily
responsive in the short term
to exchange rate changes.
Determined primarily by local
conditions
There are active local
markets, although there may
be significant amounts of
exports
Production costs and
operating expenses are
determined primarily by local
conditions
Note: AASB 121 paragraph 12 states that determination of functional currency is a matter of
judgement
Indicators pointing to
foreign operations currency
as functional currency
Indicators pointing to
reporting entitys currency
as functional currency
Retenti
on of
funds
Autonomy
Intercomp
any
transactio
ns
Cash
flows
Indicators pointing to
foreign operations
currency as functional
currency
The foreign operation operates
as an independent entity,
having little interaction either
in terms of inputs or outputs
with the reporting entity
There is a low volume of
intragroup transactions and
there is not an extensive
interrelationship between the
operations of the foreign
operation and those of the
reporting entity. However, the
foreign entity may rely on the
reporting entitys competitive
advantages, such as patents
and trademarks
The cash outlaid on goods and
services is paid to entities
other than the reporting entity,
and cash inflows from sales are
from entities other than the
Indicators pointing to
reporting entitys currency
as functional currency
The foreign operation obtains
raw materials from the
reporting entity
Servicing
of debt
obligation
s
reporting entity
The foreign operation
generates sufficient cash to be
able to services its own debt
obligations