PART A Near plc ('Near') established a new overseas subsidiary in a country where the currency unit is FC. Near owns 100% of Far Pte ('Far') which was set up on 1 January 2019 with FC 100,000 of share capital. On this date Far borrowed a further FC200,000 and invested FC300,000 in property, plant and equipment with an expected useful life of 10 years and no residual value. Far will import product manufactured by Near, paying in , and sell this into the local market with selling prices determined by local competition and denominated in FC. Far will pay for these products in but its other operating costs are predominantly in FC. Far's financing is primarily in loans from local banks denominated in FC but the distribution of profits is under parental control. Assume that Far adopts the straight-line method of depreciation. Summary financial statements for Far are shown below. Income statement for the period ending 31 Dec 2019 Revenue Cost of sales Gross Profit Depreciation Other expenses Profit before tax Taxation Profit for the year FC 500,000 (400,000) 100,000 (30,000) (50,000) 20,000 (4,000) 16,000 Statement of financial position as at 31 Dec 2019 Assets Non-current assets Property, plant and equipment Current assets Inventory Accounts receivable FC 270,000 50,000 40,000 90,000 360.000 Total assets Equity Ordinary Shares 100,000 Retained earnings 16,000 116,000 Liabilities Accounts payable 44,000 Long term loan 200,000 Equity + Liabilities 360.000 The exchange rates ruling at different dates were: 1 Jan 2019 Average for the year to 31 Dec 2019 Average for the period in which closing inventory is acquired 31 Dec 2019 FC to 6.0 7.0 7.5 8.0 Required: 3.1 Explain what is meant by functional currency under IAS 21 The Effects of Changes in Foreign Exchange Rates and how this is determined if an entity is a foreign operation. Present your assessment of the appropriate functional currency for Far. (10%) 3.2 Translate the financial statements of Far into the functional currency assuming this is and explain the treatment of any resulting exchange gain or loss. (10%)