Question

13) Which of the following statements is correct?

Multiple Choice

• a) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using historical rates.

• b) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using average rates.

• c) If the functional currency of the foreign operation is the same as the parent's functional currency, the contributed capital must be translated using average rates.

Answer 1

a) If the functional currency of the foreign operation is different than the parent's functional currency, the contributed capital must be translated using historical rates.

Reason:

If the organization is self sustaining, i.e., if the functional currency of the foreign operation is different than the parent's functional currency, then the contributed capital must be translated using hostorical rates. Hence, Option a is correct and option b & c are incorrect.