SLS 6 - 1 2 Our Team AC 3102 SLS#6 Tu Linh | Ruyue | Jing...

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AC 3102 SLS #6 Tu Linh | Ruyue | Jing Jie (Tommy) | Zhi Rong | Hong Qian | Alyssa 1 Our Team 2 AGENDA 1. Q1 - Q7 2. Short Quiz (with prizes!!) 3 Question 1 FRS 21 The Effects of Changes in Foreign Exchange Rates requires an entity to determine its functional currency and measure its results and financial position in that currency. Discuss (i) How an entity determines its functional currency (ii) The merits of measuring an entity’s results and financial position in its functional currency Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Quiz Time 4 Question 1(i) FRS 21 (Para 8) Functional currency: the currency of the primary economic environment in which the entity operates. FRS 21 (Para 9) The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. To consider in determining functional currency: The currency that mainly influences sales prices for goods and services ; and The currency that mainly influences labour, material and other costs of providing goods and services How an entity determines its functional currency Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Quiz Time 5 Question 1(i) Secondary indicators: FRS 21 (para 10) The currency in which funds from financing activities are generated; and The currency in which receipts from operating activities are usually retained Additional factors for parent to consider: FRS 21 (para 11) If the activities of the foreign operation are carried out as an extension of the parent; If the transactions with the parent are a high or a low proportion of the foreign operation’s activities; and If the cash flows from the activities of the foreign operation directly affect the cash flows of the parent If cash flows from the activities of the foreign operation are sufficient to service existing and normally expected debt obligations How an entity determines its functional currency Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Quiz Time 6
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Question 1(i) FRS 21 (para 12) If still unclear (mixed indicators), management to use its judgement (most faithfully represent) FRS 21 (para 13) Once determined, functional currency should not be changed unless there are changes in underlying events, transactions and conditions FRS 21 (para 35) If there is a change, to account prospectively from date of change How an entity determines its functional currency Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Quiz Time 7 Question 1(ii) Simplifying accounting ! No need to re-measure at date of transaction and balance sheet date Provides more relevant information to make business decisions ! Better comparisons to competitors of the same industry/in the same country ! Eliminates unnecessary foreign exchange differences which may arise from using other currencies Usefulness Faithfully reflects the economic effects of the underlying transactions and events
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