Functional Currency Is the Economic Currency
Distinguish functional currency from transaction and presentation currency under IAS 21.
Functional currency is about economic gravity. Transaction currency This is the currency of a specific transaction or balance. A company can sell in USD, borrow in EUR, and pay some suppliers in AED without changing its functional currency automatically. Functional currency This is the currency of the primary economic environment. Look for the currency that mainly influences sales prices, labor and materials, financing, and retained cash flows. Presentation currency This is the currency used to present the financial statements. A group may present in GBP even when a subsidiary's functional currency is USD. Common trap Do not pick the parent…
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