Skip to content

ACCA Strategic Professional · Strategic Business Reporting (International) · Foreign transactions and entities

Seren Co determines that its functional currency is the dollar because sales prices, major costs and financing are all dollar-denominated, although it is based in a country whose local currency is the peso and its financial statements are presented in pesos. Which statement is correct under IAS 21?

Seren measures its transactions in dollars, its functional currency, and then translates the results into pesos for presentation. Functional currency is determined by the primary economic environment, such as pricing, costs and financing, not by the entity's location or management preference.

  1. AIt must treat the peso as its functional currency because of its location
  2. BIt measures transactions in dollars and translates to pesos for presentationCorrect
  3. CIt may choose either the dollar or the peso as functional currency freely
  4. DIt records transactions in pesos and treats dollar items as foreign currency

Explanation

Functional currency is the currency of the primary economic environment, determined by factors such as sales prices, costs and financing, not by location or by choice. Seren therefore measures in dollars and then translates to the peso presentation currency using the IAS 21 translation method.

Did you get it right without looking?

One question tells you little. A timed set on Foreign transactions and entities shows your real accuracy, how long you take and where you lose marks.

Practise Foreign transactions and entitiesFree diagnostic mock

More Foreign transactions and entities questions