Under the foreign currency unit of measure approach, a decrease in the direct exchange rate results in an adverse reporting result when the parent has a positive balance in its Investment in Subsidiary account.

Question

Quizplus · Accepted Answer

When the direct exchange rate decreases, the value of the subsidiary's assets and liabilities in the parent's functional currency increases. If the parent has a positive balance in its Investment in Subsidiary account, this increase will result in an adverse reporting result, as the parent's investment in the subsidiary will be worth less in the parent's functional currency.

Under the Foreign Currency Unit of Measure Approach, a Decrease