When a parent entity has an overseas subsidiary the first task before consolidation is to:
A) translate the financial statements from the functional currency to the presentation currency.
B) translate the financial statements from the presentation currency to the functional currency.
C) determine the functional currency of the overseas subsidiary.
D) determine the functional currency of the parent entity.

Question

Quizplus · Accepted Answer

Before consolidating the financial statements of the overseas subsidiary, it is necessary to determine its functional currency. This is because the financial statements need to be translated to the reporting currency of the parent entity for consolidation purposes. The functional currency is the currency of the primary economic environment in which the subsidiary operates and generates cash flows. Once the functional currency is determined, the financial statements can be translated from the functional currency to the presentation currency.

When a Parent Entity Has an Overseas Subsidiary the First