Indicators Pointing Towards the Local Overseas Currency as the Functional

question 14

Multiple Choice

Indicators pointing towards the local overseas currency as the functional currency include, that the:
I. Parent's cash flows are directly affected on a current basis.
II. Cash flows are primarily in the local currency and do not affect the parent's cash flows.
III. Sales prices are primarily responsive to exchange rate changes in the short-term.
IV. Production costs are determined primarily by local conditions.

• A) I and III only;
• B) II and IV only;
• C) I, III and IV only;
• D) I, II and IV only.

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Definitions:

Margin of Safety Ratio

A financial ratio that measures the difference between actual sales and break-even sales, used to assess a company's financial risk.

Break-even Point

The point at which total costs and total revenue are equal, meaning there is no net loss or gain, and the business is not making a profit.

Actual Sales

This refers to the actual revenue generated from the sale of products or services, as opposed to projected sales or forecasts.

Break-even Point

The point at which total revenues equal total costs, meaning the company neither makes a profit nor incurs a loss.