(a) A foreign operation harvests pineapples that are shipped to Australia for processing at the Australian parent entity's 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. Antonio's records and financial statements are prepared in Italian Lira (IT L). Antonio has prepared the following financial information at 30 June 2016.

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.

 
 

Antonio. Statement of Financial Position As at 30 June 2016 IT L Current assets: Deposits Monetary assets 210 000 230 000 Total current assets 440 000 Non-current assets: Land - acquired 1/7/15 Buildings - acquired 1/11/15 Plant and equipment acquired 1/11/15 Accumulated Depreciation 100 000 120 000 110 000 (10 000) 10 000 Deferred tax asset 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: 150 000 370 000 400 000 Borrowings Total liabilities Net assets Equity: Share capital Retained earnings Total equity 310 000 90 000 400 00