The correct answer is (a).
The current assets and liabilities of a foreign branch should be converted at the exchange rate prevailing on the last day of the year. This is because the exchange rate on the last day of the year is the most accurate reflection of the value of the foreign currency.
The average exchange rate for the year is not as accurate because it does not take into account the fluctuations in the exchange rate throughout the year. The exchange rate prevailing on the beginning of the year is also not as accurate because it does not take into account the changes in the value of the foreign currency that have occurred since the beginning of the year. The specific exchange rate of SDR is not relevant because SDR is a unit of account that is not used in the conversion of current assets and liabilities.
Here is a more detailed explanation of each option:
(a) Exchange Rate prevailing on last of the date the year. This is the most accurate reflection of the value of the foreign currency because it takes into account the fluctuations in the exchange rate throughout the year.
(b) Average Exchange Rate. This is not as accurate because it does not take into account the fluctuations in the exchange rate throughout the year.
(c) Exchange Rate prevailing on the beginning date of the year. This is also not as accurate because it does not take into account the changes in the value of the foreign currency that have occurred since the beginning of the year.
(d) Specific Exchange Rate of SDR. This is not relevant because SDR is a unit of account that is not used in the conversion of current assets and liabilities.