Let us understand what is a presentation currency and how it is different from the functional currency.
Presentation currency is the currency in which the financial statements are prepared.
This can be in a currency chosen by the entity as the entity is free to choose its own currency.
This is mainly for the purpose of presenting the financial statements to the stake holders who are located in another geographical area having a different local currency.
The main difference between a functional currency and the presentation currency should be understood very clearly.
Functional currency is determined by applying the factors that are specified in the standard which are known as primary factors.
If there is a conflict in the primary factors, then the entity should look for secondary indicators.
Selecting the correct functional currency is extremely important as this will have a severe impact on the profit and loss account if not selected properly.
The functional currency is determined individually for different entities even within the same group and there is no such concept called group functional currency.
However, presentation currency is selected by the entity as a matter of choice.
Selecting any currency will have no impact on the profit and loss account. There could also be a group presentation currency if the group so decides.
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