ACC322
PQ 17.8 Translation to presentation currency
On 1 July 2.017. Melbourne Ltd, an Australian company, acquired the issued shares of Memphis Ltd. a company incorporated in the United States. The draft statement of profit or loss and other comprehensive income and statement of financial position of Memphis 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
On 1 January 2018, Memphis Ltd acquired new plant for US$120 000. This plant is depreciated over a 5-year period.
On 1 April 2018, Memphis Ltd acquired US$200 000 worth of land.
On 1 October 2017, Memphis Ltd acquired USS100 000 worth of new buildings. These buildings are depreciated evenly over a 10-year period.
The interim dividend was paid on 1 January 2018 while the dividend payable was declared on 30 June 2018.
Sales, purchases and expenses occurred evenly throughout the period. The inventory on hand at 30 June 2018 was acquired during June 2018.
The loan of US$530 000 from Melbourne Ltd was granted on 1 July 2017. The interest rate is 8% per annum. Interest is paid on 30 June and 1 January each year.
On consolidation, the partial goodwill method is used.
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 Memphis Ltd is the US dollar. Prepare the financial statements of Memphis Ltd at 30 June 2018 in the presentation currency of the Australian dollar.
- Verify the foreign currency translation adjustment.
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