Elliottand Elliofi,FinanciatAccountingand Repofting,16thedition,Instructor's

Manualon the Web

Question2 Fibre Group

(a)Incomestatement

Fibre Fastlink Fasflink Fibre

Incomestatement group
f000 $000 Rate C000 t000
Sales 200,000 50,000 2.25 22,222.2 222,222.2

Openinginventories 20,000 8,000 2.5 3,200.0 23,200.0

Purchases 1 3 0 , 0 0 0 30,000 2.25 13,333.3 143,333.3
Closinginventories -40,000 -6,000 2.2 -2,727.3 -42,727.3

Costof sales 1 1 0 , 0 0 0 32,000 13,806.1 123,806.1

Grossprofit 90,000 18,000 8,416.2 98,416.2

Otherexpenses -15,000 -6,500 2.25 -2,888.9 -17,888.9

Profitbeforetax 75,000 11,500 5,527.3 80,527.3

Taxation -15,000 -3,000 2 -1,500.0 - 16,500.0

Profitaftertax 60,000 8,500 4,027.3 64,027.3

Note:the openinginventoryis translated at the rateat 1 January20X1as thiswas the date

of acquisition
(if the acquisition
was at say 1 January20X0,it wouldhavebeentranslated at a
rateof US$1= R$1.8)

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(b) Statementof financial position

Statement
of financialposition
Fibre Fastlink Fastlink Fibregroup
t000 $000 t000 t000
Non-current
assets 90,000 25,000 12,500 102,500
Investment
in 6,000 Goodwill 500
Fastlink N1

Currentassets
Inventories 40,000 6,000 2 3,000 43,000
Tradereceivables 27,000 5,000 2 2,500 29,500
Cash 2,000 4,000 2 2,000 4,000

69,000 15,000 7,500 76,500

Current
liabilities
Tradepayables 35,000 11,000 A trNN
40,500
Taxation '15,000 3,000 '16,500
1,500

Totalcurrent '14,000
liabilities 50,000 7,000 57,000

Totalassetsless 115,000 26,000 13,000 122,500

liabilities

Sharecapital 20,000 1,200 2 600 20,000

Sharepremium 800 2 400
Retainedearnings 95,000 24,000 2 12,000 N399,900

1'15,000 26,000 13,000 11 9 , 9 0 0

Non-controlling N2 2,600
interest

115,000 26,000 13,000 122,500

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Nl Goodwill calculation

$000 t000
Cost 15,000

Sharecapital 1,ZOO
Sharepremium 800
Retainedearnings 1S,500

17,500 x B0% 14,000 Rate t000 Rate t000 Gain

1.1.20X1 31.12,X1
Goodwill 1.000 2.5 4OO Z 500 100

Note:

(a) For the Statementof financialpositionthe goodwill

is recalculated
as at the rateat the year-
endto give us f500,000.

(b) The differencebetweenthe goodwill as at acquisition

date and closing date is taken to the
retainedearningsof the parent.

N2 Non-controlling interest

NCIat 31.12.X1 $000 Rate t000 t000

Sharecapital 2 600
1,200
Sharepremium 800 2 4OO
Retained
earnings 24,000 2 12.000

13,000x 20o/o 2.600

========

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(c) N3 Post-acquisitionprofit of subsidiary attributabre

to parent

$000 Rate t000 t000 1000

Retainedprofit parent NCI
Perincomestatement
4,027.3 3,221.8 805.5
At closingrate 8,500 4,250.0

Gainon exchange
222.7 178.2 44.5

Gainon openingshareholders'
funds
Sharecapital 1,200
Sharepremium 800
Retained
earnings 15,500
Openrate
17,500 2.5 7,000
Closerate
z 8,750

Gain
1,750 1,400

Gainon goodwill Open rate

Goodwill 1,000 2.5 400
Closerate
2 500

Gain
100 100

Post-acquisition
profitattributableto Fibre
4,900

Post-acquisition
profitattributableto NCI
1,200
OpeningNCI (12,b00x ZOoktZ.S)
1,400

ClosingNCt (26,000x 20%t2)

2,600

Groupretainedprofitat3j.12.X1 t000
Fibre 95,000
Fastlinkpost-acq(above) 4,900

Groupretainedprofit oo onn

Note:.thereis no post acquisitionshare premium,as

the subsidiary'sbalance at
acquisition
and at 31.12.X1is the sameat $80b,000

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Question4-lAS21
(u) Theansweris givenin Section26,4of thetextof theChapter

(b) All the itemsin the Statement at a rateof $1 : E(Euro)

of Financialpositionaretranslated
0.72425
Eufonion- Statementof FinancialPositionat 31 October2008
ASSETS Em Rate $m
assets
Non-current 420 0.7425 565.7
Currentassets
lnventories 26 0.7425 35.0
Tradeandotherreceivables 42 0.7425 56.5
Cashandcashequivalents B 0.7425 10.8

102.3

Totalassets 668.0

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EQUITYAND LIABILITIES
Equity
Sharecapital 200 0.7425 269.4
Retained
earnings 107 0.7425 144.1

2n7
413.5

Non-current Ii abi I ities 85 0.7425 114.5

Currentliabilities
Tadeand otherpayables 0.7425
OJ 84.B
Currenttaxation t4
0.7425 55.2

104 140.0

Totalliabilities 189 254.5

Totalequityand liabilitres 496 668.0

The new shares(in dollars ($)) are likely to be a differenttotal

from thosein Euros (e.g. the
issuedsharesmay be 200 million at $l nominal each).If this is
the case,then an additional
reserve($69.am)will-be addedto equity in the Statementof Financialposition.
If it createsa
negativereserve(i.e. 300 million sharesof $l each,which gives
a negativereserveof $31.6m),
thenit may be deductedfrom retainedearnings.

(c) If the British pound is usedas the functionalcurrency

for the year ended3 I October2009,
the openingStatementof FinancialPositionwill be trinslatedai the
exchangerate($ to g) at
I November2008' If the operatingcurrencyof Eufbnionremains
Euros,"thenthl income
statementwill be translatedinto fs at the averagerate for the year
and the Statementof
FinancialPositionat 3l october 2009will be trinslatedat the rate
from Euro to fs at 3l
October2009.
As a comment,it is undesirablefor entitiesto switchfunctionalcurrencies
frequentlyunless
therearegoodreasonsfor doing so.

(d) Most entities operating in a single country will use that

country's currency as both its
functionalandpresentation currency.
However, where most of the entity's shareholdersare in one country
but most of its
operationsare in a different country (with a different currency) it would
be appropriatefor
the functional curency to be that where most of the oierations
tat<eitace but the
presentation crrrency will be wherethe companyis registered.
Another exampleis companieswhich operatein the oil industry.Most
of the transactions
aredenominatedin US $, and this will be the functionalcurrency.However,
if the company
is registeredin the lJK, thenthe presentation
currencymay be uK f .
The financial statementsmay be reportedin two currencieswhere a significant
number of,
shareholders are residentin a different country from where the entityis registered(".g.
a
UK registeredcompanywheremostof the shareholders areresidentin-Jaoani

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