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Jack Merchandising Plc is a US company listed on the New York Stock Exchange in 1935 and has subsidiaries in many developing countries. As part of its expansion strategy to developed countries, it acquired Jill Trading UK Ltd on 1 May 2019 as a wholly owned subsidiary in England to serve as its base to the European market. The retained earnings of Jill Trading UK Ltd at the acquisition date were 58,740. Jills local currency is the British Pound Sterling () and its functional currency is the Euro (). The following are the post-acquisition financial statements of Jill Trading UK Ltd:

Jill Trading UK Ltd

Statement of Comprehensive Income for the year ended 30 April 2020

Revenue		2,250,000
Cost of sales:
Inventory 1 May 2019	76,800
Purchases	1,650,000
Inventory 30 April 2020	(145,500)
Cost of sales		(1,581,300)
Gross profit		668,700
Administrative expenses	(100,500)
Selling expenses	(93,000)
Depreciation	(25,500)	(219,000)
Operating profit		449,700
Finance costs		(15,000)
Profit before tax		434,700
Corporate tax		(29,080)
Profit for the year		405,620
Final dividend		(32,000)
Retained earnings for the year		373,620

Jill Trading UK Ltd

Statement of Financial Position as at 31 December 2019

Non-current assets
Property, plant and equipment	305,000
Patent & Trademark	45,000	350,000
Current assets
Inventories	145,500
Trade and other receivables	58,100
Cash and cash equivalents	62,500	266,100
Total assets		616,100
Current liabilities
Trade payables & others	51,740
Dividend payable	32,000	(83,740)
Total Net Assets		532,360
Equity
Share capital		100,000
Retained earnings		432,360
Total equity		532,360

Additional information:

1. The closing inventories were shipped between March and April 2020.
2. All the non-current assets were valued at the date of acquisition. However, the Patent & Trademark were fair valued at the balance sheet date.
3. The share capital of 100,000 included an additional 20,000 share capital purchased by Jack Merchandising Plc on 31 January 2020 to support the growth of Jill Trading UK Ltd in the European market.
4. The relevant exchange rates are:

1 May 2019 31 January 2020		10.0 = 1 12.0 = 1
Average rate for March - April 2020		12.5 = 1
30 April 2020		14.0 = 1
Average rate for the year		13.0 = 1

5. If at all there is any decimal (excluding exchange rates), round off to the nearest whole number.

Required:

1. Translate the financial statements of Jill Trading UK Ltd for the year ended 30 April 2020 from the local currency into its functional currency of Euro in accordance with the relevant accounting standard.
2. Briefly explain the factors that determine the functional currency of a foreign subsidiary.

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