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      Question

      Beta Ltd., an Indian company, operates a 100% subsidiary

      in the UAE. The subsidiary manufactures and sells products only in the Gulf region, incurs costs and revenues in AED, borrows locally in AED, and its management makes decisions independently of the parent. However, the parent prepares consolidated financials in INR. What should be the functional currency of the UAE subsidiary as per Ind AS 21?
      A INR, since it is the reporting currency of the group Correct Answer Incorrect Answer
      B AED, since the entity primarily generates and spends cash in AED Correct Answer Incorrect Answer
      C USD, as it’s the global reporting currency standard Correct Answer Incorrect Answer
      D Both AED and INR are acceptable Correct Answer Incorrect Answer

      Solution

      β€’ Functional currency = the currency of the primary economic environment where the entity operates β€’ The subsidiary earns and spends in AED, borrows in AED, and operates independently β†’ therefore, AED is the functional currency β€’ INR is the presentation/reporting currency, but not the functional currency for the subsidiary

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