As at December 31, 20x4 and 20x5

20x5	20x4
Cash	$75,000	$60,000
Accounts receivable	230,000	150,000
Inventory	510,000	340,000
Fixed Assets - net	1,350,000	1,500,000
Total Assets	2,165,000	2,050,000
Current liabilities	$65,000	$45,000
Long-term debt	600,000	600,000
Common Stock	500,000	500,000
Retained earnings	1,000,000	905,000
Total of liabilities and equities	2,165,000	2,050,000

The income statement of Funny Corporation for year ended December 31, 20x5 is given below:

Revenues	$1,900,000
Cost of goods sold	(1,100,000)
Gross Margin	800,000
Operating expenses	(375,000)
Amortization	(150,000)
Interest expense	(40,000)
Income taxes	(90,000)
Total Expenses	(655,000)
Net Income	$145,000

IAS 21 establishes accounting standards for the translation of the financial statements of a foreign operation for use by a reporting enterprise (a Canadian investor).A foreign operation is viewed as either integrated or self-sustaining for translation purposes, depending on whether the functional currency of the foreign entity is the same as or different from the functional currency of the Canadian reporting entity.

IAS 21 defines functional currency as the currency of primary economic environment in which the entity operates. The primary economic environment is normally the one in which the entity primarily generates and expends cash.

There are many indicators for determining the functional currency for a foreign operation. When the indicators are mixed and the functional currency is not obvious, management uses its professional judgement to determine the functional currency.

To translate the foreign operation’s financial statement into presentation currency of investor, different exchange rates are used for different items under different methods of translation.

A list of relevant exchange rates at different dates is given below for translation purpose:

December 31,20x3	1 AUS $=CD 2.17
November 30,20x4	1AUS $=CD 2.21
December 31,20x4	1AUS $=CD 2.27
Average - 20x4	1AUS $=CD 2.20
November 30,20x5	1AUS $=CD 2.31
December 31, 20x5	1AUS $=CD 2.35
Average – 20x5	1AUS $=CD 2.29

Other relevant information for translation purpose is as follows –

1. The December 31, 20x4 inventories were purchased on average on November 30, 20x4 and the December 31, 20x5 inventories were purchased on average on November 30, 20x5.
2. Dividends are declared on December 31 of every year.
3. The 20x4 net income was $120,000 and the 20x4 dividends were $40,000.
4. The converted value of retained earnings on January 1,20x5 was CAD$1,933,950 under Functional Currency Translation (FCT) (temporal) method and $1,963,450 under Presentation Currency Translation (PCT) (current rate) method.

Requirement:

1. Based on the information provided determine the type of foreign subsidiary for translation purpose (Give reason for your selection of a specific type); (2)
2. Prepare a translated income statement for the year ended December 31,20x5;and (7)
3. Prepare a translated balance sheet as at December 31, 20x5. (6)

How do I balance that balance sheet for part 3?