PART I Determine the Functional Currency

An entity operating in France owns several buildings in Paris that are rented to foreign companies, mostly US companies. The lease contracts are determined in US dollars and payment can be made in either US dollars or euros.

A US entity has a foreign subsidiary located in Greece. The Greek subsidiary imports a product manufactured by its parent, paying in dollars, which it sells throughout Greece with selling prices denominated in euros and determined primarily by local competition. The subsidiarys long-term financing is primarily in the form of dollar loans from its parent and distribution of its profits is under parental control. Proceeds of the subsidiary are remitted to the parent on a regular basis.

PART II Practical Exercise

Deutsche Mobile AG is a German listed company that sells mobile phones with the Euro () as its functional currency. On 1 January 2021, the company bought a new subsidiary, E-mobile, a company incorporated in Egypt with retained earnings of E880. E-mobile acts as the sales agency to Deutsche Mobile AG in Egypt, which mainly involves selling mobile phones exported by Deutsche Mobile AG. All proceeds are remitted immediately to Deutsche Mobile AG. All transactions between the parent company and its subsidiary are in Euro ().

E-mobiles post-acquisition Statement of Comprehensive Income and Statement of Financial Position stated in Egyptian Pound E are as follows:

Statement of Comprehensive Income for the year ended 31 December 2021

	E		E
Revenue			246,752
Cost of sales:
Opening inventory	12,320
Purchases	211,552
Closing inventory	(27,808)		(196,064)
Gross profit			50,688
Administrative expenses	20,416
Depreciation	5,632		(26,048)
Operating profit			24,640
Finance costs			(1,408)
Profit before tax			23,232
Income tax expense			(3,344)
Profit for the year			19,888

Statement of Financial Position as at 31 December 2021

	E
ASSETS
Non-current assets	10,208
Current assets
Inventories	27,808
Trade and other receivables	9,504
Cash and cash equivalents	5,984
Total assets	53,504
LIABILITIES
Current liabilities
Trade and other payables	4,576
Net assets	48,928
EQUITY
Share capital	28,160
Retained earnings	20,768
Total equity	48,928

Additional information:

All non-current assets were purchased at the time of incorporation. E-mobile has not made any new non-current asset acquisitions since it was acquired by Deutsche Mobile.

E-mobiles closing inventory of E12,500 were shipped from its parent company on 15 November 2021 while the remainder were shipped on 31 December 2021.

The relevant exchange rates are:

1 January 2021	1 = E12.50
15 November 2021	1 = E18.20
31 December 2021	1 = E19.40
Average rate for 2021	1 = E16.60

Required:

Translate E-mobiles financial statements for the year ended 31 December 2021 into the functional currency of Deutsche Mobile AG in accordance with relevant accounting standards.

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