Translate the financial statements for Emerald for the year ended 31
December 2010 and 2011 for the purposes of consolidation. State the balance
for the Foreign Currency Translation reserve account for each year with clear
workings.
Question 4 (Total: 25 marks)
Sage Bhd, a Malaysian company, has an 80% interest in Emerald Inc in the US,
and a 40% interest in Waga Corporation in Australia. The financial statements of
Emerald Inc and Waga Corporation for the years ended 31 December 2010 and
2011 are as follows:
Statements of Financial Performance
for the years ended 31 December 2010 and 2011
Emerald Inc Waga Corporation
2011 2010 2011 2010
US$’000 US$’000 A$’000 A$’000
Sales 96,000 84,000 50,000 76,000
Cost of sales (72,000) (58,000) (36,000) (60,000)
Gross profit 24,000 26,000 14,000 16,000
Operating expenses (14,000) (12,000) (8,000) (10,000)
Profit before tax 10,000 14,000 6,000 6,000
Taxation (4,000) (6,000) (2,000) (2,000)
Profit after tax 6,000 8,000 4,000 4,000
Statements of Financial Position as at 31 December 2010 and 2011
Emerald Inc Waga Corporation
2011 2010 2011 2010
US$’000 US$’000 A$’000 A$’000
Fixed assets (net) 400,000 370,000 80,000 70,000
Current assets 400,000 500,000 36,000 30,000
Current liabilities (300,000) (340,000) (20,000) (16,000)
Long-term liabilities (250,000) (260,000) (46,000) (40,000)
Net assets 250,000 270,000 50,000 44,000
Share capital 200,000 200,000 20,000 20,000
Revaluation surplus 4,000
Retained earnings 50,000 70,000 26,000 24,000
Shareholders’ equity 250,000 270,000 50,000 44,000
Additional information:
(i) Emerald Inc was incorporated by Sage Bhd on 31 December 2008. There has
been no change in the share capital of the company since then.
Sunway University Business School Sample ACC3054 Final Examination
10
(ii) Sage Bhd acquired the 40% interest in Waga Corporation on 31 December
2009 when the share capital and retained earnings of Waga Corporation were
A$20,000,000 and A$20,000,000 respectively. The investment cost was
A$16,000,000. The fair values of assets and liabilities were similar to their
book values.
(iii) On 1 December 2011, Waga Corporation revalued its properties, which
resulted in a revaluation surplus of A$4,000,000. The prevailing exchange rate
was A$1 = RM3.06.
(iv) Waga Corporation paid a dividend of A$2,000,000 on 31 December 2011.
Emerald Inc paid a dividend of US$26,000,000 on the same date.
(v) Relevant exchange rates are as follows:
US$1 = RM A$1 = RM
31 December 2008 3.53 2.79
31 December 2009 3.31 2.92
31 December 2010 3.46 2.40
1 January 2011 3.47 2.42
31 December 2011 3.42 3.06
Average rate for 2009 3.43 2.87
Average rate for 2010 3.32 2.82
Average rate for 2011 3.51 2.77
The functional currencies of Emerald Inc and Waga Corporation are the US dollar
(US$) and the Australian dollar (A$) respectively. The presentation currency of
Sage Bhd is the Ringgit Malaysia (RM).
Required
(a) Translate the financial statements for Emerald for the year ended 31
December 2010 and 2011 for the purposes of consolidation. State the balance
for the Foreign Currency Translation reserve account for each year with clear
workings. (15 marks)
(b) Compute the balance of the ‘Investment in Waga Corporation’ account in Sage
Bhd’s Consolidated Statement of Financial Position as at 31 December 2011.
Show all workings clearly. (6 marks)
(c) MFRS 21 The Effects of Changes in Foreign Exchange Rates, replaces the
concept of ‘reporting currency’ used in the original MFRS with two new
concepts, i.e. ‘functional currency’ and ‘presentation currency.’ Briefly discuss
how a company might determine its functional currency.
(4 marks)
Total (25 marks)
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