Subsidiary currency as Functional currency

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Luckyguy

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CFAI Volume 2, Reading 21, Page 294
Explanation of Q#9 says that “Canadian dollar would be the appropriate reporting currency when substantially all operating, financing and investing decision are based on local currency…..”.
I want to understand few points here:
1) Unless otherwise stated functional currency will be always be parent’s presentation currency?
2) I believe in this scenario (from Question 7-12) functional currency was Dollar but when question specifically mentions FC will be Canadian Dollar then we will use Canadian dollar as functional currency.
 
Luckyguy wrote:
CFAI Volume 2, Reading 21, Page 294
Explanation of Q#9 says that “Canadian dollar would be the appropriate reporting currency when substantially all operating, financing and investing decision are based on local currency…..”.
I want to understand few points here:
1) Unless otherwise stated functional currency will be always be parent’s presentation currency?
Click to expand...
No, unless it’s given, you will have to make the determination based upon the information provided in the vignette and definitions of the various currency types (see p. 221)
Luckyguy wrote:
2) I believe in this scenario (from Question 7-12) functional currency was Dollar but when question specifically mentions FC will be Canadian Dollar then we will use Canadian dollar as functional currency.
Click to expand...
I don’t quite follow what your question is here, but the functional currency choosen will ultimately drive whether you use current rate or temporal method, which is basically the substance of this question.
 
Ignore everything, what is LC, FC and PC in the vignette.
Also, can you mention paragraph on page 221?
 
There are specific criteria for which currency is the functional currency; it must be chosen according to those criteria. Once the functional currency is determined, then the proper method for reporting will be determined: If the local differs from the functional currency, then the temporal method is used to remeasure the local currency into the functional currency; if the functional currency differs from the presentation currency, then the current rate method is used to translate the functional currency to the presentation currency.
Although it will likely never appear on a Level II CFA exam, it is possible for the local currency, the functional currency, and the presentation currency all three to be different: you would remeasure the local currency into the functional currency (temporal method), then translate the functional currency into the presentation currency (current rate method). Yuck!
 
S2000magician will you please give me details regarding specific criteria for which currency is the functional currency. Is that criteria defined in CFAI Volume 2?
 
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