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 are 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 their functional currency. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Since the subsidiary is operating in a different country and using a different currency, its financial statements must be converted to the functional currency (Canadian Dollar) before consolidation. This process is known as re-measurement. The current rate method of translation is used to translate foreign currency financial statements into the functional currency for consolidation. Therefore, option A is incorrect. Option B is incorrect since re-measurement is required. Option D is incorrect since consolidation is required for all subsidiary companies.