In: Film and Music

Submitted By amink
Words 1002
Pages 5
Before starting the discussion on determining the functional currency of Sparkle, the issue of hyperinflationary economies should be addressed, according to IAS 29 and FASB 52 it’s presented in countries in which “the cumulative inflation rate over three years is approaching, or exceeds, 100%”. If this condition is presented in a country where a parent has a subsidiary they must not use the local currency as their functional currency, instead, the currency of the parent should be adopted.

In this regard, the International Monetary Fund states that the average inflation over the past decade in Nigeriawas 12.45% and during the last three years the average was 12.61%. Thus, it can be decided that this condition doesnot take place in this country and should be dismissed as a point of discussion in determining the functional currencyof Sparkle.


Under IAS 21, there is a hierarchical approach to determine the functional currency of a company operating with foreign currencies, below are items to consider during the decision making process in descending order of importance:

1. The currency that mainly influences sales price for goods and services.
2. The currency of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services.
3. The currency that mainly influences labor, material and other costs of providing goods or services.
4. The currency in which receipts from operating activities are usually retained.
5. Whether the activities of the foreign operation are carried out as an extension or are autonomous.
6. Whether transactions with the reporting entity are high or low proportion of the foreign activities
7. Whether the cash flows of foreign operation directly affect the cash flows of the reporting entity.
8. Whether the cash flows from the activities of the foreign operation are sufficient to…...

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