SIMCO Commercial Corporation (SCC) is located in Godalming, United Kingdom (U.K.). SCC is owned by an investment group located in London and all corporate functions are performed in Godalming. However, manufacturing operations occur in both the U.K. and South Africa. SCC’s president made the statement that the corporation should use the EU as functional currency since administrative functions are performed in the U.K and the corporate headquarters are domiciled here. However, the head of operations stated that the functional currency, at least for the manufacturing arm, should be the South African Rand because all materials are purchased locally and 80% of manufacturing occurs in South Africa.
Prepare a one page essay that discusses which individual you agree with and why. In your essay, address the following:
- What are the ramifications to the consolidated financial statements of SCC if the EU is used as the functional currency for the manufacturing operations located in South Africa?
- What are the ramifications to the consolidated financial statements of SCC if the South African Rand is the functional currency used for the manufacturing operations located in South Africa?