Question

issue in financial accounting

A Singaporean operation is a wholly owned subsidiary of an Australian company which regards the operation as a long term investment, and thus takes no part in the day to day decision making of the operation. The operation purchases parts from various Australian manufacturers for assembly by Singaporean labour. The finished product is exported to a number of countries but Singapore is still the major market. Consequently, sales price is dominated by competition within Singapore and follows the local regulations in Singapore.

Required

Using AASB121 highlight and explain the factors that will determine the functional currency? Is it Singaporean or Australian dollars?

Answer 1

Functional Currency is that currency of the primary economic environment in which the entity operates

Factors to Determine the Functional currency are:

• Currency of the country which influence sale price
• Currency of the country whose regulations & market forces determine the selling price
• Currency which influence material,labour & other costs

Therefore, here in this case, functional currency is Singaporean dollars Because,

• The competition & regulations in singapore determines the sale price
• Labour costs are incurred in Singopore dollars
• Sales was majorily made in singapore.