Question

Tea Inc, an 80% subsidiary of Karkade Plc set up on 1 January 2018, prepares its accounts in the currency "S". The financial statements of Tea as at 31 December 2018 are given as follows: Statement of financial position as at 31 December 2018 Fixed assets Less accumulated depreciation Net book value Stock Other net current assets Current assets Long-term liabilities 8% debentures 10,800 (2,400) 8,400 24,000 6,600 30,600 Share capital Profit for the year Dividends paid (18.000) 21,000 15,000 9,000 (3.000) 21.000 Statement of comprehensive income for the year ended 31 December 2018 S Turnover 36,000 Cost of sales Opening stock 21,600 Purchases 21,000 Closing stock (24,000) (18.600) Gross profit 17,400 General expenses (600) Depreciation (2,400) (3.000) Profit before tax 14,400 Tax (5.400) Profit after tax 9,000 The exchange rates are given as follows: Date S to £ 1 January 2018 3 Ordinary shares issued and opening stock purchased 1 March 2018 5 Fixed assets purchased 1 September 2018 6 Closing stock for 2018 bought 31 December 2018 8 Dividends paid Average 2018

Answer 1

	Tea Inc, an 80% subsidiary of Karkade Plc, prepares its accounts in currency "$".
	Tea Inc need to translate its financials using Temporal Method.
	Statement of Financial position as at 31st Dec 2018 -
		$	$		£	£
	Fixed Asset	$10,800.00			$54,000.00
Less	Accumulated Depriciation	-$2,400.00			-£   12,000.00
	Net Book Value		$8,400.00			$42,000.00
	Stock	$24,000.00			$144,000.00
	Other Net Current Assets	$6,600.00			$52,800.00
	Current assets		$30,600.00			$196,800.00
	Long Term Liablities
	8% Debentures		-$18,000.00			-$144,000.00
			$21,000.00			$94,800.00
	Share Capital	$15,000.00			$45,000.00
	Profit fot the Year	$9,000.00			$73,800.00
	Dividends Paid	-$3,000.00	$21,000.00		-$24,000.00	£    94,800.00
	Statement of Comprehensive Income for the Year ended 31st Dec 2018
		$	$		£	£
	Turnover		$ 36,000.00			£ 252,000.00
	Cost of Sales
	Opening stock	$ 21,600.00			£    64,800.00
	Purchases	$ 21,000.00			£ 147,000.00
	Closing Stock	$ 24,000.00			£ 144,000.00
			$ 18,600.00			£    67,800.00
	Gross Profit		$ 17,400.00			£ 184,200.00
	General Expenses	$     (600.00)			-£      4,200.00
	Depreciation	$ (2,400.00)			-£   16,800.00
			$ (3,000.00)			-£   21,000.00
	Profit before Tax		$ 14,400.00			£ 163,200.00
	Tax		$ (5,400.00)			-£   37,800.00
	Profit After Tax		$    9,000.00			£ 125,400.00
Note 1-	Monetary Items such as cash, AR, AP Bonds are converted using the exchange rate at the time of producing the financials.
Note 2-	Non-monetary items, which include things such as fixed assets and inventory, are converted using the currency exchange rate that was in effect when the assets were acquired.
Note 3 -	Stock is converted using the prevailing currency exchange rate when the stock was issued
Note 4-	Sales and some expense items are converted using average of the exchange rate for the current reporting period.
Note 5 -	Some non-monetary items that appear on the company’s balance sheet, such as depreciation and amortization, are converted using whatever the associated exchange rate listed on the balance sheet is.