Question

Q22 U.S. GAAP includes these indicators as guidance for determining a subsidiary's functional currency, except for:

Multiple Choice

• location of sales market.

• sources of expenses.

• sources and uses of cash flows.

• source of taxation.

Answer 1

The correct answer is Source of Taxation.

As per US GAAP, the functional currency should be computed keep in mind factors such as currency of sales of the company and currency of cost of sales and expenses. The location of sales will determine the currency of sales directly.

Tax is the only criteria above which is not directly linked with the funcitonal currency that the subsidiary should choose. Taxation is applied on where the income has been earned rather than the currency in which it is earned. For example, the tax laws may levy taxes for an organization even though there majority business may be done in foreign currency.