The functional currency is determined based on the judgment of management and involves consideration of all relevant economic facts and circumstances affecting the subsidiary.
The currency in which the subsidiary transacts a majority of its transactions (including transfer pricing arrangements, billings, financing, payroll and other expenditures) is one consideration of determining the functional currency; however, any dependency upon the parent and the nature of the subsidiarys operations are also considered.
The consolidated balance sheet also includes foreign subsidiaries.
However, it is sometimes difficult to convert the financial statements of a foreign subsidiary back into the parent company's currency.
The consolidated financial statements give a valuable overview of how well the entire corporation is being managed and are useful in valuing the company as a whole.
On the balance sheets, the shares owned by outsiders are shown on the balance sheet as an item.
Other income, net includes any gain or loss associated with the re-measurement of a subsidiarys financial statements when the functional currency of a subsidiary is the United States dollar.
However, if the functional currency is deemed to be the local currency, any gain or loss associated with the translation of these financial statements into the United States dollar would be included within accumulated other comprehensive income (loss) on our consolidated balance sheets.
Financial statements are prepared the same for the subsidiary as they are for the parent company.
The more assets or liabilities the company has that are denominated in a foreign currency, the greater the translation risk.
Ultimately, for financial reporting, the parent company will report its assets and liabilities in its home currency.
As a result of this determination, assets and liabilities in these subsidiaries are re-measured at current exchange rates, except for property and equipment and deferred revenue, which are re-measured at historical exchange rates.
These companies choose to invest in foreign markets for different reasons: There are many challenges that impact multinational companies.