On 1 November 2003, DX invested in 100% of the share capital of EY, a new entity incorporated on that date. EY's operations are located in a foreign country where the currency is the Franc. DX has no other subsidiaries.
The summary financial statements of the two entities at their 31 October 2008 year-end were as follows:
Summary income statements for the year ended 31 October 2008

Summary statements of changes in equity for the year ended 31 October 2008

1 November 2003 1$ = 2.0 francs
31 October 2007 1$ = 2.3 francs
31 October 2008 1$ = 2.7 francs
Average rate for year ended 31 October 2008 1$ = 2.6 francs
Required:
(a) Explain the meaning of the term 'functional currency' as used by IAS 21, The Effects of Changes in Foreign Exchange Rates, and identify THREE factors that an entity should consider in determining its functional currency.
(b) Prepare:
(i) The summary consolidated income statement for the year ended 31 October 2008;
(ii) The summary consolidated balance sheet at 31 October 2008.
(c) Prepare the summary consolidated statement of changes in equity for the year to 31 October 2008 and a calculation that shows how the exchange gain or loss for the year has arisen.

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DX $000 EY Franc 000 Revenue Cost of sales. other expenses and income tax Profit for the period 3 600 2 800) 800 1 200 1 000) 200 DX 5 225 (200 Franc 000 Brought forward at 1 November 2007 Profit for the period Dividends Carried forward at 31 October 2008 5 825 1 700 5000 5 000 Franc 000 1500 Property plant and equipment Investment in EY Current assets 4 400 9 426 1 000 4 825 3 600 2 000 Share capital Retained earnings Current liabilities 1 800 3 500