The exchange rates

Question 1 (15 marks)
On 1 January 2021, PPP Ltd incorporated a subsidiary, S Ltd, for FC
4,000. The functional currency of S Ltd is FC and therefore the financial
statements of S Ltd are in FC. On the other hand, the functional and
presentation currency of PPP Ltd is HK$.
Before PPP Ltd prepares the consolidated financial statements, it needs
to translate the financial statements of S Ltd into HK$. However, at
year-end, an accountant has only found the exchange rates as below and
prepared the financial information of S Ltd in FC. Thus, the financial
information of S Ltd in Hong Kong dollars has not been prepared.
The exchange rates were:
1 January 2021 FC1 = HK$1.10
19 August 2021 FC1 = HK$1.15
31 December 2021 FC1 = HK$1.30
Average for 2021 FC1 = HK$1.08
Statement of profit or loss for the year ended 31 December 2021
FC Ex. rate HK$
Revenue 8,000 ? ?
Expenses (3,000) ? ?
Net profit for the year 5,000 ? ?
Dividend paid on 19/8/2021 (1,200) ? ?
Retained profits 3,800 ? ?
Assignment File 19
Statement of financial position as at 31 December 2021
FC Ex. rate HK$
Property, plant and equipment 4,300 ? ?
Net current assets 3,500 ? ?
7,800 ? ?
Share capital 4,000 ? ?
Retained profits 3,800 ? ?
Exchange difference reserve ? ?
7,800
Requirement:
Prepare the statement of financial position as at 31 December 2021 and
the statement of profit or loss of S Ltd in Hong Kong Dollars for the
year ended 31 December 2021.
Question 2 (65 marks)
Extracts from the group’s consolidated financial statements for the yearend are set out below.
Consolidated statements of financial position as at 31 December
ASSETS
2020
$
2019
$
Non-current assets
Property, plant and equipment 1,500,000 1,100,000
Goodwill 100,000 120,000
Investment in associate 300,000 400,000
1,900,000 1,620,000
Current assets
Inventories 300,000 280,000
Trade and other receivables 400,000 320,000
Cash and cash equivalents 27,000 6,000
727,000 606,000
Total assets 2,627,000 2,226,000
EQUITY AND LIABILITIES
Equity
Ordinary share capital ($1 shares) 750,000 500,000
Retained earnings 800,000 400,000
Attributable to the equity holders of Parent 1,550,000 900,000
Non-controlling interest 500,000 490,000
2,050,000 1,390,000
Current liabilities
Trade and other payables 427,000 658,000
Income tax payable 150,000 178,000
577,000 836,000
Total equity and liabilities 2,627,000 2,226,000
20 ACT B407 Advanced Financial Reporting and Analysis I
Consolidated statement of profit or loss for the year
ended 31 December 2020 (extract)
Continuing operations $
Profit from operations 600,000
Share of profits of associate 50,000
Profit before tax 650,000
Income tax expense -53,625
Profit for the year from continuing operations 596,375
Discontinued operations
Loss for the year from discontinued operations Note 1 -70,000
Profit for the year 526,375
Attributable to:
Owners of the parent 421,100
Non-controlling interest 105,275
526,375
Note 1 $
Loss before tax -90,000
Income tax refund 30,000
Loss on disposal Note 2 -10,000
-70,000
Note 2
The net assets of that disposal subsidiary
at the date of disposal were:
$
Property, plant and equipment 100,200
Trade and other receivables 12,000
Cash and cash equivalents 300
Trade and other payables -80,000
32,500
Additional information:
a The parent company held a lot of subsidiaries and one associate
company.
b The net asset approach was adopted by the group to measure the
non-controlling interest.
c During the current year ended, the impairments of goodwill of other
subsidiaries were recognized.
d During the current year ended, the only disposals of property, plant
and equipment made by the group were those on the disposal of that
subsidiary Ltd.
The group purchased property, plant and equipment for cash.
$300,000 was the total group depreciation charge during the year.
Assignment File 21
e During the current year, there was a bonus issue out of retained
earnings.
$15,000 was the bonus shares issued during the year.
Apart from the bonus issue, the parent company also issued shares
and received cash from shareholders.
f During the current year, the parent company sold its 70% holding
subsidiary for cash.
The loss from discontinued operations in the consolidated statement
of profit or loss related wholly to the sale of all shares in that
subsidiary.
For the disposal of that subsidiary, its goodwill arising on business
combinations had been fully written off as at current year end.
$12,750 cash was received from the disposal of that subsidiary by
the group.
70% of the parent held that subsidiary before it was disposed of
during the year.
Requirements:
1 Prepare a consolidated statement of cash flows for the year ended
31 December 2020, using the indirect method. (50 marks)
2 Prepare the journal entry regarding the business transaction for the
$10,000 loss on disposal of the subsidiary. (5 marks)
3 Prepare all journal entries regarding the movement of the associate
during the year. (6 marks)
4 Prepare the journal entry regarding the impairment of goodwill
during the year. (4 marks)
Question 3 (20 marks)
Extracts from the group’s consolidated statement of profit or loss for the
year ended 30 September 2020 are set out below.
Consolidated statement of profit or loss for the year
ended 30 September 2020 (extract)
$
Profit from operations 380,000
Share of profits from an entity 27,000
Profit before tax 407,000
Income tax expense (100,000)
Profit for the year 307,000
Attributable to:
Owners of the parent 245,600
Non-controlling interest 61,400
307,000
22 ACT B407 Advanced Financial Reporting and Analysis I
The board of directors is unclear about the $27,000 share of profits in
the consolidated statement of profit or loss for the year ended
30 September 2020. They would like to determine whether the amount
arose from a subsidiary, an associate, a joint venture, or a joint operation.
Requirements:
1 In the context of Business combinations, Investment in associates
and Joint arrangement, briefly explain the different accounting
treatments among a subsidiary, an associate, a joint venture and a
joint operation in the consolidated financial statement. (15 marks)
2 If you are an accountant, which two forms of an entity among a
subsidiary, an associate, a joint venture and a joint operation should
be excluded when you provide advice to the board of directors based
on the above extract of the consolidated statement of profit or loss?
(5 marks)