The Campbell Company of Canada purchased 100% of the shares of Funny Corporation of Australia on December 31, 20x3 for developing new markets for their products. It is a public company and operating business successfully for last five years.

Funny Corporation sells the goods imported from Campbell Company. Campbell produces all goods for sale in Australia. Campbell Company also dictates the operational procedures of Funny Corporation.

IAS 21 requires that financial statements of subsidiary are to be translated into the investor company’s presentation currency before preparing consolidated financial statements. There are two major methods for translating the foreign operations under Canadian GAAP. After the adoption of IFRSs in 2011, there was no change in translation methods. IAS 21 also uses the similar approach for translating the financial statements of foreign operations.

Funny Corporation prepares financial statements in Australian dollar (AUS$). The financial statements for the Funny Corporation are as follows:

Funny Corporation

Balance Sheet

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

Funny Corporation

Balance Sheet

As at December 31, 20x4 and 20x5

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

1. Prepare a translated income statement using FCT Method for the year ended December 31,20x5
2. Prepare a translated balance sheet using FCT Method as at December 31, 20x5.