Identify and Explain foreign subsidiary transactions and how Essay

Identify and Explain foreign subsidiary transactions and how determination of functional currency affects group profit for Qantas - Essay Example 2) Maintenance and overhauling cost of each subsidiary is shown in their financial statement as opposed to financial statement of parents. Each subsidiary is likely to incur this cost based on their need for maintenance. This is also based on the underlying principle of matching concept whereby each subsidiary (JETSAR) recognizes the revenue it earns from freight and air passengers it is necessary to match the maintenance cost incurred against the revenue earned. Qantas Ltd cannot undertake the transaction as this would result in bearing expenses for revenue that has not been earned by the parent company. 3) External segment tours and travel revenue of Jetstar would be recorded in the subsidiaries books of account (Qantas, 2010). This is the revenue that does not contain any inter group transaction (that are automatically eliminated in the consolidated statements) but rather pertains to sales made to external customers (Hodge, 2009). This segment is not targeted by Qantas Limited and revenue arises as a result of operations conducted by Jetstar Pacific. The business reason for this transaction not being undertaken by Qantas Ltd is that Jetstar is essentially targeting its flight at different routes in order to maximize cost saving for the entire group such as undertaking the route to New Zealand. The revenue principally arises as a result of operations undertaken by Jetstar and thus are recorded in subsidiaries books. The functional currency is defined as the currency of the primary economic environment in which the entity operates (Hodge, 2009). If the functional currency of the subsidiary of Qantas Limited is Australian dollar (AUD) then the subsidiaries financial statements would involve the statement of Assets and liabilities, revenue and income in the Australian dollar only. If the subsidiary has a functional currency other than the Australian dollar for example the American dollar