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An entity changes its FUNCTIONAL CURRENCY because the primary economic environment has substantively changed (e.g. shift in sales to a new geography). Under Ind AS 21, the change is accounted for:
ABy treating prior periods as exchange differences
BPROSPECTIVELY from the date of the change — translate all items into the new functional currency using the exchange rate at the date of change
CBy restating only equity items
DRetrospectively by restating prior periods
Answer & Solution
Correct answer: B. PROSPECTIVELY from the date of the change — translate all items into the new functional currency using the exchange rate at the date of change
Functional currency changes are prospective. Translate using the exchange rate at the date of change; thereafter, apply the new functional currency. The change must be driven by an actual change in primary economic environment, not by a unilateral choice.
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