In short
A company's functional currency is the currency of the primary economic environment in which it operates, normally the one in which it generates and spends cash.
Key takeaways
- Indicators include the currencies of cash flows, sales prices, expenses and financing.
- Records kept in another currency are remeasured into the functional currency, with gains and losses in net income.
- Statements in a functional currency other than the reporting currency are translated, with adjustments in other comprehensive income.
Where it's tested
BAR: Foreign Currency Translation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A foreign subsidiary maintains its books in its local currency, which is also determined to be its functional currency. How is the resulting adjustment from converting to the parent's reporting currency treated?