Question

What factors are used to determine a reporting entity’s functional currency? Provide at least one example for which a company’s local currency may not be its functional currency.

Answer 1

Answers used to determine Factors that are Currency .are, & a reparting entity's functional . Defination → Functional wwency as per IAS 21, is the wrency of the primary Clonomic environment in which the entity Operates. 7. It is most helevant for MNC's that Conduct Business.in multiple Currencies factors 1. The most important factor among all is the "wrency that most affects the sale price Borrowing Transaction wrrency and correnly in which company maintains cash should also be considered- Currency in which Inventory, labour and Expenses in wred are also significant Note :- → In General Functional currency will be the Local Conency for a reporting entity.

local currency sha times, Local currency is quite Inflationary and in such a Care - wrrency should not be used due to this lack of Stability Examples • Us based company with most of its Operations in London would Use Pound Sterling (f) as its functional curency, ever account and Financial Statements que en pressed in ims OR Us Dollars_( $.