a) A foreign operation harvests pineapples that are shipped to Australia for processing at the Australian parent entitys canning facility. All senior personnel at the foreign operation are parent entity employees. Monthly invoices for pineapples supplied to the parent are denominated in US dollars. The parent entity pays these invoices with US dollars obtained by selling its finished product to US customers. Payments to the foreign operation cover all running costs but long term financing is provided by the parent entity.

Required: In relation to the above case, briefly discuss which currency you regard as the functional currency? Offer reasons for your answer.

b) Antonio, a company operating in Italy, is a wholly owned subsidiary of Plane Ltd, a company listed in Australia. Plane Ltd formed Antonio on 1 July 2015 with an investment of A$310,000. Antonios records and financial statements are prepared in Italian Lira (IT L). Antonio has prepared the following financial information at 30 June 2016. Antonio. Statement of Financial Position As at 30 June 2016 IT L Current assets:: Deposits 210 000 Monetary assets 230 000 Total current assets 440 000 Non-current assets: Land acquired 1/7/15 100 000 Buildings acquired 1/11/15 120 000 Plant and equipment acquired 1/11/15 110 000 Accumulated Depreciation (10 000) Deferred tax asset 10 000 Total non-current assets 330 000 Total assets 770 000 Current liabilities: Current tax liability 70 000 Borrowings 50 000 Payables 100 000 Total current liabilities 220 000 Non-current liabilities: Borrowings 150 000 Total liabilities 370 000 Net assets 400 000 Equity: Share capital 310 000 Retained earnings 90 000 Total equity 400 000 Formal Exams SP53, 2020 BX3012 Contemporary Issues in Accounting Page 4 of 6 Antonio Statement of Profit or Loss and Other Comprehensive Income for the year ended 30 June 2016 IT L IT L Sales revenue 700 000 Expenses: Selling 320 000 Depreciation 20 000 Interest 20 000 Other 190 000 550 000 Profit before income tax 150 000 Income tax expense 60 000 Profit for the period 90 000 Additional information I. Exchange rates over the period 1 July 2015 to 30 June 2016 were: IT L A$ 1 July 2015 1.00 1.00 1 October 2015 1.00 0.95 1 November 2015 1.00 0.90 1 January 2016 1.00 0.85 30 June 2016 1.00 0.75 Average rate for year 1.00 0.85 Average rate for final quarter 1.00 0.77 II. Revenues and expenses are spread evenly throughout the year Required: The functional currency of Antonio is Italian Lira and the presentation currency is Australian dollars. Translate the financial statements of Antonio. into the functional currency. You are expected to provide the relevant journal entries and a set of Statement of Financial Position and Statement of Profit or Loss and Other Comprehensive Income presented in the functional currency.