Foreign Currency Transtation$-$Problem based Question

LMVH is a French parent company reporting in Euro currency. The company Invested AED $3600,000$ on $1$ January $2021$ in Allutaina, a UAE subsidiary. The UAE subsidiary took a local loan of AED $2400000$ and buys Plant and Equipment for AED &

Alluraina reports a profit of AED $500000$ for the year ended $31$ December $2021.$

The exchange rates between Euro and AED are as follows:

Dates

$1/1/2021$

$31/12/21$

Exchange Rate

EURO

AED

$1$

$45$

$3\mathrm{.}5$

Average rate during $2021$

$1$

$4$

The Statement of Financial Position $($Balance Sheet$)$ of Alluraina in AED is as given below:

Balance Sheet of UAE Subsidiary $($In AED$)$

$1/1/2021$

$31/12/21$

Fixed Assets

less Depreciation

Inventory

Monetary Assets

less Current Liabilities

$6000\mathrm{.}00$

$6000\mathrm{.}00$

$-300\mathrm{.}00$

$600\mathrm{.}00$

$700\mathrm{.}00$

$500\mathrm{.}00$

$800\mathrm{.}00$

$6000\mathrm{.}00$

$6500\mathrm{.}00$

less Long$-$term liabilities

$2400,00$

$2400\mathrm{.}00$

Total Net Assets

$3600\mathrm{.}00$

$4100\mathrm{.}00$

Financed by equity

Stock Capital

$3600\mathrm{.}00$

$3600\mathrm{.}00$

Retained Earnings

$500\mathrm{.}00$

Total Equity

$3600\mathrm{.}00$

$4100\mathrm{.}00$

Required:

Using IAS $21,$ translate the Balance Sheet of Alluraina from AED to EURO using $($i$)$ Temporal Method and Closing Rate

Method. $(6$ marks$)$

Assume that you are the CEO of Alluraina, which translation method do you prefer and why? $(2$ mar