Which of the following statements is correct?
A) If the functional currency of the foreign operation is different than the parent's functional currency, the monetary items must be translated using closing rates.
B) If the functional currency of the foreign operation is different than the parent's functional currency, the monetary items must be translated using average rates.
C) If the functional currency of the foreign operation is different than the parent's functional currency, the shareholders' equity must be translated using closing rates.
D) If the functional currency of the foreign operation is the same as the parent's functional currency, the non-monetary items recorded at cost must be translated using average rates.

Question

Quizplus · Accepted Answer

If the functional currency of the foreign operation is different than the parent's functional currency, the monetary items must be translated using closing rates. This is because monetary items represent assets and liabilities that are expected to be settled in a different currency at some point in the future, and the closing rates reflect the exchange rates at the end of the period when these items will be settled.

Which of the Following Statements Is Correct