Assume that a New Zealand company has a subsidiary operating in an overseas country. This subsidiary is heavily reliant on equity financing to support its operations. The financial statements of this subsidiary are translated using the method prescribed at and around paragraph 39 of NZ IAS 21. The subsidiary reports a small profit for its most recent financial year, during which the New Zealand dollar weakens dramatically against the currency of the country where the subsidiary is domiciled (based). Based on the above information, the chief accountant of the New Zealand company concludes that the opening credit balance of the foreign currency translation reserve (FCTR) in the Balance Sheet will further increase at the end of the subsidiarys most recent financial year.

To what extent do you agree or disagree with the chief accountants conclusion? Clearly explain your reasoning