5SSMN235 SECTION C : ANSWER ONE QUESTION FROM THIS SECTION Question 3 The Aldi Group, which has been growing ever since its foundation in the 1960s, operates over 10,000 shops worldwide, primarily across Europe. Aldi mainly trades in pound sterling, and therefore its financial statements are prepared to reflect that currency. It will have to translate the financial statement of its Irish subsidiary from euros to pounds. Below are extracts from financial statements of Aldi UK Ltd, which are the accounting policy notes that explain the treatment of all foreign currency transactions. Transactions denominated in foreign currencies are translated into Sterling at the rate of exchange ruling at the date of the transactions. Monetary assets and monetary liabilities denominated in foreign currencies are translated into Sterling using the closing rate. The results of the Irish subsidiary enterprises are translated into Sterling at the average rates of exchange for the year except for material exceptional items which are translated at the rate ruling on the date of transaction. The assets and liabilities of the Irish subsidiary enterprises are translated into Sterling at the closing exchange rate. The exchange differences arising on the retranslation of the retranslation of the opening net assets of the Irish subsidiary enterprises and from the translation of profit and losses at average rates are recognized in other comprehensive income. Aldi UK Ltd, 2018 Financial Statement (a) Based on the information from the extracts above, explain the difference between functional and presentation currency, and state which is which for the Irish subsidiary of Aldi. Comment on the policy followed by Aldi for translating the Irish subsidiary results at two different rates under IAS 21. (8 marks) (b) Appraise the concepts on which the closing rate and temporal methods are based under IAS 21, and critically discuss the differences between these translation methods, and the factors that will be taken into account in choosing between the two methods under IAS 21. (22 marks) (Total 30 marks)