Foreign Currency Matters Essay Example | Topics and Well Written Essays - 500 words - 1

Foreign Currency Matters - Essay Example On the other hand, if the functional currency is the Japanese Yen, then there will be no effect on exchange rates. This means that cash flows will not be impacted, hence not included in net income (Financial Accounting Standards Board, 1981). Â  In a situation where more than half of the subsidiary’s revenue is Singapore sources, the Singapore Dollar will be the functional currency but the end of year finances will be reported in Japanese Yen. On the other hand, if more than half of the subsidiary’s revenue is from Japanese sources then the functional and reporting currency will remain as Japanese Yen (Earnest & Young, 2014). Â  4. Remeasurement means that a subsidiary’s functional currency is dominant in record keeping. At the end of the year, the current exchange rates are put into an account before reporting such that any gain or loss is reflected in the income statement. On the other hand, translation means the books are kept on the functional currency and transferred directly to the reporting currency without reflecting any gain or loss out of the exchange process. This can be reflected in the equity books away from financial books (Carmichael, Whittington & Graham, 2007). Â  5. Windbigler’s statement is incorrect when he says that the current exchange rate is defined as the exchange rate between functional currencies and reporting currencies at the balance sheet. In practice, the current exchange rate is defined as exchange rate at the balance sheet of the functional currency before the reporting currency. Alvarez statement is correct concerning monetary assets and liabilities (Georgiades, 2008). Â