Foreign entity’s functional and parent firm currency

Question

Specify some of instances under FASB 52 that foreign entity’s functional currency would be same as the parent firm’s currency.

Answer 1

Three instances under FASB 52, where foreign entity’s functional currency will be identical to the parent firm’s currency, are as follows:

a) The cash flows of foreign entity directly affect the parent’s cash flows and are readily available for remittance to the parent firm;

b) Sales prices for foreign entity’s products are responsive on the short-term basis to exchange rate changes, where sales prices are computed by the global competition; and,

c) Sales market is mainly placed within the parent’s country or sales contracts are denominated in parent’s currency.