An Australian company, Beds Ltd, operates a subsidiary in Auckland called Sheets Ltd.
Usually, Sheets Ltd uses New Zealand dollars to pay suppliers of goods and services, and its customers settle their accounts in New Zealand dollars. Sheets’ operations have been
financed by borrowings in Hong Kong dollars from a Hong Kong bank and two share
floats on the Australian Securities Exchange. The management of Sheets Ltd has argued
that the subsidiary can service its debt independently of Beds Ltd. However, this ability
is yet to be demonstrated. The functional currency of Beds Ltd is Australian dollars.
What is the functional currency of Sheets Ltd, determined in accordance with the
requirements of AASB 121?
