LaSalle Ltd. ,a Canadian company has a subsidiary in Brazil that produces a component used in LaSalle's manufacturing.All of the components that the subsidiary produces is sold to LaSalle.The subsidiary also purchases most of the raw materials used in its production from LaSalle.Both companies use the Canadian dollar as its functional currency.Which of the following statements is true?

Question

Quizplus · Accepted Answer

Since the subsidiary and parent company use different currencies as their functional currency and the transactions between them are significant, the subsidiary's financial statements need to be re-measured into the functional currency of the parent company (Canadian dollar) prior to consolidation. This ensures that all financial statements are expressed in a common currency, which facilitates accurate consolidation of accounts. The current rate method of translation is used to re-measure the subsidiary's financial statements. Nothing suggests that consolidation is not required, and using the subsidiary's financial statements without any adjustments would not accurately reflect LaSalle's financial position.