Reference no: EM132798288

Question - On 31 December 2018, Zeus Ltd, whose functional currency is the dollar ($), incorporated a subsidiary, Britton Ltd in Country X, whose currency is the FC. Britton is an internet service company. The company was incorporated with a paid-up capital of FC 400,000. On 31 December 2018, Britton Ltd purchased computers that cost FC 400,000. The estimated useful life of computers is 5 years. During 2019, Britton Ltd earned FC 100,000 from the service provided to customers. At the end of 2019, Britton Ltd has a cash balance of FC 100,000. Exchange rates are as follows:

FC 1 = 31-Dec-2018 $0.50

Average for 2019 $0.60

31-Dec-2019 $0.70

Required -

1. Briefly explain the objectives of translating financial statements of a foreign subsidiary. List three economic factors to be considered in determining the functional currency for a consolidated subsidiary.

2. Assume the functional currency of Britton Ltd is the FC, determine the translation method and calculate the translation difference for Britton Ltd for the year 2019.

3. Assume the functional currency of Britton Ltd is the dollar ($), determine the translation method and calculate the translation difference for Britton Ltd for the year 2019.

4. Continued with requirement 3 above, calculate the net profit for Britton Ltd for the year2019.