If the functional currency is the local currency of a foreign subsidiary,what exchange rates should be used to translate the items below,assuming the foreign subsidiary is in a country which has not experienced hyperinflation over three years?
A)Option A
B)Option B
C)Option C
D)Option D

Question

Quizplus · Accepted Answer

Under the functional currency approach, the items should be translated at the exchange rate prevailing on the transaction date. Option A provides the transaction date exchange rates for all currencies. Since the functional currency is the local currency of the foreign subsidiary, these transaction date exchange rates should be used to translate the items. Option B provides average rates for the period, which is not appropriate under the functional currency approach. Option C provides closing rates, which could be used under the temporal method but not the functional currency approach. Option D provides historical rates, which would not be appropriate under any approach.

If the Functional Currency Is the Local Currency of a Foreign