Rickman Enterprises Inc. (REI) is a publicly-traded, Canadian-based diversified multinational corporation with numerous subsidiaries located throughout the world. Each subsidiary is a reportable industry segment for financial reporting purposes. On January 1, 20X9, REI acquired 100% of the voting shares of Minaker Confections Ltd. (MCL), a Colombian-based manufacturing company. Summarized financial statements for 20X9 are in Exhibit 1, along with exchange rates and supporting information. REI paid $4 million cash for the MCL common shares, an acquisition that involved goodwill of $500,000. REI issued shares to finance the acquisition. MCL is only one part of REI’s extensive business operations and investment portfolio, but it has strategic importance as a low-cost manufacturing operation. You, CPA, are a member of the accounting group at REI. The chief financial officer (CFO) is preparing for a senior management meeting, where accounting policies will be discussed before a presentation to the board of directors on the topic. The CFO made the following request:I’d like you to prepare a briefing document for our management meeting tomorrow. I’d like you to establish the functional currency of MCL, providing some background on the topic as a refresher for us all. Recall that the functional currency of REI is the Canadian dollar. For MCL, describe the impact of each alternative (the functional currency being the Canadian dollar versus being the Colombian peso) on the amounts reported on the statement of consolidated net income (SCI). You also need to prepare an analysis of the relevant factors to determine whether the functional currency is the Canadian dollar or the Colombian peso and then provide a recommendation. Remember, we are concerned with a stable bottom line. For most of our competitors and most of our other subsidiaries, the functional currency is not the Canadian dollar. We’d like to know the impact the alternative functional currencies would have on our consolidated earnings per share including MCL. We have bonuses based on consolidated earnings per share to consider but I don’t need to know the actual numerical change in EPS. REI has the right to appoint all seven members of the MCL board of directors. However, REI left six pre-existing members in place because of their expertise and local connections and appointed only one new member, who is the chair of the board. REI has not been required to provide any operating cash flow to MCL because MCL generates sufficient cash flow from its own operations to service its debt. MCL has remained largely autonomous from REI and it makes its own strategic decisions about what products to manufacture. At the end of 20X9, MCL distributed excess cash to REI by way of dividends. REI generally issues shares to fund acquisitions. The company prefers stable earnings trends and knows that investors watch all key ratios to ensure that REI remains comparable to its competitors. REI maintains a bonus plan for its key senior executives with bonuses based on consolidated earnings per share (EPS). REI has one million shares outstanding and has a 30% income tax rate. REI reports in Canadian dollars and uses the cost method to account for subsidiaries during the year. Including dividend income, REI’s 20X9 earnings after consolidating all other subsidiaries, but before consolidating MCL, were $4 million. MCL prepares its stand-alone financial results in accordance with IFRS, in Colombian pesos (COL$). MCL’s accounting policies are generally consistent with those of REI. MCL sells all its production in Canada with sales denominated in Canadian dollars (C$). Approximately 60% of sales are made to REI, with the remaining 40% sold to other, arm’s-length wholesalers. MCL sources most of its labor and materials locally and pays for those items with Colombian pesos. Proceeds from Canadian dollar sales are converted to Colombian pesos as needed to meet operational requirements and debt-servicing obligations. Approximately 60% of excess cash is retained in Canadian dollars, with the balance held in Colombian pesos. During the last 10 years, the inflation rate in Colombia has fluctuated between 6% and 11% per year. Prepare a memo that addresses the requests of the CFO. In your response, you should consider the requirements of IFRS, REI’s financial reporting goals, and the potential bias of REI’s management team. (NOTE: No calculations are required in your response.)