D Ltd, an Australian company, purchased all the issued share capital of F Ltd, a company headquartered in France, on 1 January 2020. At this date, the net assets of F Ltd were represented as follows:

EURO

Share Capital

300,000

Retained Earnings

150,000

Total Net Assets

450,000

F Ltd keeps its financial records by using Euro () as its functional currency. The presentation currency of the D Ltd Group is the Australian dollar ($AUD).

During the financial year ended 31 December 2020, F Ltd has made an after-tax profit of 45,000. All revenues and expenses recorded by F Ltd to generate this profit were incurred evenly throughout the year. F Ltd did not pay any dividend. There were no other movements in the equity accounts of F Ltd during this financial year.

Relevant exchange rates were as follows (AUD$1 = EURO):

1 January 2020

AUD $1 = EURO 0.58

31 December 2020

AUD $1 = EURO 0.63

Average for 2020

AUD $1 = EURO 0.61

Required:

Calculate the balance of the Foreign Currency Translation Reserve (FCTR) resulting from the transaction of the financial statements of F Ltd as at 31 December 2020. Need show all steps in the calculations.

Explain why the Foreign Currency Translation Reserve is needed to produce a balanced sets of translated financial statements.