ACC322
PQ 17.8 Translation to presentation currency
On 1 July 2017, Westland Limited an Australian company acquired the issued shares of Bull Limited a company incorporated in the United States. The draft statement of profit or loss and other comprehensive income and statement of financial position of Bull Ltd at 30 June 2018 was as follows:
| US$ | US$ | |
| Sales revenues | 1,600,000 | |
| Cost of sales: | ||
| Opening inventory | 140,000 | |
| Purchases | 840,000 | |
| 980,000 | ||
| Closing inventory | 280,000 | 700,000 |
| Gross profit | 900,000 | |
| Expenses: | ||
| Depreciation | 90,000 | |
| Other | 270,000 | 360,000 |
| Profit before income tax | 540,000 | |
| Income tax expense | 200,000 | |
| Profit | 340,000 | |
| Retained earnings as at 1 July 2017 | 200,000 | |
| 540,000 | ||
| Dividend paid | 120,000 | |
| Dividend declared | 200,000 | 320,000 |
| Retained earnings as at 30 June 2018 | 220,000 | |
| 2018 | 2017 | |
| US$ | US$ | |
| Current assets: | ||
| Inventory | 280,000 | 140,000 |
| Accounts receivable | 20,000 | 130,000 |
| Cash | 20,000 | 570,000 |
| Total current assets | 320,000 | 840,000 |
| Non-current assets: | ||
| Patent | 80,000 | 80,000 |
| Plant | 720,000 | 600,000 |
| Accumulated depreciation | -130,000 | -80,000 |
| Land | 500,000 | 300,000 |
| Buildings | 920,000 | 820,000 |
| Accumulated depreciation | -120,000 | -80,000 |
| Total non-current assets | 1,970,000 | 1,640,000 |
| Total assets | 2,290,000 | 2,480,000 |
| Current liabilities: | ||
| Provisions | 500,000 | 620,000 |
| Accounts payable | 320,000 | 940,000 |
| Total current liabilities | 820,000 | 1,560,000 |
| Non-current liabilities: | ||
| Loan from Echidna Ltd | 530,000 | |
| Total liabilities | 1,350,000 | 1,560,000 |
| Net assets | 940,000 | 920,000 |
| Equity: | ||
| Share capital | 720,000 | 720,000 |
| Retained earnings | 220,000 | 200,000 |
| Total equity | 940,000 | 920,000 |
Additional information
(a) On 1 January 2018, Bull Ltd acquired new plant for US$120,000. This plant is depreciated over a 5-year period.
(b) On 1 April 2018, Bull Ltd acquired US$200,000 worth of land.
(c) On 1 October 2017, Bull Ltd acquired US$100,000 worth of new buildings. These buildings are depreciated evenly over a 10-year period.
(d) The interim dividend was paid on 1 January 2018, half of which was from profits earned prior to 1 July 2017, while the dividend payable was declared on 30 June 2018.
(e) Sales, purchases and expenses occurred evenly throughout the period. The inventories on hand at 30 June 2018 were acquired during June 2018.
(f) The loan of US$530,000 from Westland Limited was granted on 1 July 2017. The interest rate is 8% p.a. Interest is paid on 30 June and 1 January each year.
The exchange rates for the financial year were as follows:
| US$1 = A$ | |
| 1 July 2017 | 2.00 |
| 1 October 2.017 | 1.80 |
| 1 January 2018 | 1.70 |
| 1 April 2.018 | 1,60 |
| 30 June 2018 | 1.50 |
| Average June 2.018 | 1.52 |
| Average for 2017-18 | 1,75 |
Required
- If the functional currency for BULL LIMITED is the US dollar, prepare the financial statements of BULL LIMITED at 30 June 2018 in the presentation currency of the Australian dollar.
- Verify the foreign currency translation adjustment.
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