(a) According to IAS 21 The Effects of Changes in Foreign Exchange Rates , how should a company decide what its functional currency is?
(b) Until recently Eufonion, a UK limited liability company, reported using the euro (‚¬) as its functional currency. However, on 1 November 2007 the company decided that its functional currency should now be the dollar ($).
The summarised balance sheet of Eufonion as at 31 October 2008 in ‚¬ million was as follows:

Non-current liabilities includes a loan of $70 million which was raised in dollars ($) and translated at the closing rate of $1 = ‚¬0.72425.
Trade receivables include an amount of $20 million invoiced in dollars ($) to an American customer which has been translated at the closing rate of $1 = ‚¬0.72425.
All items of property, plant and equipment were purchased in euros (‚¬) except for plant which was purchased in British pounds (£) in 2007 and which cost £150 million. This was translated at the exchange rate of £1 = ‚¬1.46015 as at the date of purchase. The carrying value of the equipment was £90 million as at 31 October 2008.
Required:
Translate the balance sheet of Eufonion as at 31 October 2008 into dollars ($m), the company's new functional currency.
(c) The directors of Eufonion (as in (b) above) are now considering using the British pound (£) as the company's presentation currency for the financial statements for the year ended 31 October 2009.
Required:
Advise the directors how they should translate the company's income statement for the year ended 31 October 2009 and its balance sheet as at 31 October 2009 into the new presentation currency.
(d) Discuss whether or not a reporting entity should be allowed to present its financial statements in a currency which is different from its functional currency.

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ASSETS €m Non-current assets 420 Current assets Inventories 26 Trade and other receivables 42 Cash and cash equivalents 76 Total assets 496 EQUITY AND LIABILITIES Equity Share capital Retained earnings 200 107 307 Non-current liabilities 85 Current liabilities Trade and other payables 63 Current taxation 41 104 Total liabilities 189 Total equity and liabilities 496