Question

On January 1, Year 4, P Company (a Canadian company) purchased 90% of S Company (located in a foreign country) at a cost of 15,580 foreign currency units (FC).

The carrying amounts of S Company's net assets were equal to fair values on this date except for plant and equipment, which had a fair value of FC22,000, with a remaining useful life of 10 years. A goodwill impairment loss of FC100 occurred evenly throughout Year 4.

The following exchange rates were in effect during Year 4:

Jan. 1 FC1 = $1.10

Average for year FC1 = $1.16

When ending inventory purchased FC1 = $1.1q

Dec. 31 FC1 = $1.22

The statement of financial position of S Company on January 1, Year 4, is as follows:

Plant and equipment (net) Inventory Monetary assets (current) S Company (FC) 20,000 9,100 11,100 40,200 Ordinary shares Retained earnings Bonds payable (mature in eight years) Current liabilities 10,000 3,650 16,000 10,550 40,200

The December 31, Year 4, financial statements of P Company (in $) and S Company (in FC) are shown below:

Dividends were declared on December 31, Year 4, in the amount of $23,200 by P Company and FC4,100 by S Company.

Required

(a) Prepare the December 31, Year 4, consolidated financial statements, assuming that S Company's functional currency is each of the following:

(i) The Canadian dollar

(ii) The foreign currency unit

Answer 1

Required: (a) Prepare the December 31, Year 4, consolidated financial statements, assuming that s Company's functional currency is each of the following: (Round your answers to the nearest whole number. Input all amounts as positive values.) Rate FCs $15,580 Dollars $ 17,138 Cost of 90% of S Company 1.10 1.10 1.10 19,042 15,015 Implied value of 100% 17,311 Carrying amount of S Company's net assets 13,650 Acquisition differential 3,661 Allocated: Plant and equipment 2,000 1.10 4,027 1.10 2,200 Goodwill $ 1,661 1.10 $ 1,827 (i) The Canadian dollar C = closing rate Av = average rate Year 4 H = historical rate FCs $(15,450) Net monetary position - Jan. 1/4 Rate (1.10H (1.16AV $ Dollars 16,995 243,600 Sales 210,000

Purchases Other monetary expenses Dividends (135,600) (65,200) (4,100) 1.16Av 1.16AV 1.220 157,296 75,632 5,002 x 120 Calculated position Dec. 31/4 Actual monetary position Dec. 31/4 $(10,350) * 1.22C 11,325 12,627 Exchange loss - Dec. 31/4 $ 1,302 s Company - December 31/4 Plant and equipment (net) Inventory Monetary assets FCs $18,000 12,100 19,200 x x Rate 1.10H 1.19H 1.22C Dollars $ 19,800 14,399 23,424 $49,300 $ 57,623 * 1.10H $ Ordinary shares Retained earnings Bonds payable Current liabilities $10,000 9,750 16,000 13,550 1.220 1.220 11,000 10,572 19,520 16,531 $49,300 $ 57,623 1.16AV $ Sales Cost of sales Other expenses Exchange loss $210,000 (132,600) (67,200) 243,600 152,907 77,832 1,302 o Profit Retained earnings, Jan. 1 Dividends 10,200 3,650 (4,100) 1.10H 1.22C 11,559 4,015 5,002 x Retained earnings, Dec. 31 $9,750 $ 10,572 Cost of sales Inventory Jan. 1 Purchases + $ $9,100 135,600 x X | 1.10H 1.16Av 10,010 157,296 144,700 (12,100) 167,306 14,399 Inventory Dec. 31 1.19H Cost of sales - calc. $132,600 152,907 Other expenses Depreciation Other expenses 2,200 $(2,000) (65,200 1.10H 1.16Av X 75,632 $(67,200 $ 77,832 Calculation of consolidated profit - Year 4 P Company - profit Less: Dividends from s Company (as recorded) Dollars $ 31,802 4,502 27,300 s Company - profit Less: Acquisition differential amortization 11,559 330 11,229 Profit $ 38,529 Attributable to: Shareholders of P Company Non-controlling interest 37,406 1,123 Consolidated Income Statement - Year 4 Sales $ 655,400 359, 307 256, 152 Cost of sales Other expenses Goodwill impairment loss Exchange loss 110 1,302 616,871 Profit $ 38,529 Attributable to:

Shareholders of P Company Non-controlling interest 37,406 1,123 Consolidated Retained Earnings Statement - Year 4 Balance Jan. 1 $ 39,298 Profit 37,406 76,704 23,200 Dividends Bal. Dec. 31 $ 53,504 $ Consolidated Statement of Financial Position At Dec. 31, Year 4 Plant and equipment Goodwill Inventory Monetary assets 90,580 1,717 48,799 54,976 $ 196,072 $ 196,072 (ii) The foreign currency unit C = closing rate Av = average rate Year 4 H = historical rate Net assets - Jan. 1 Profit - Year 1 Dividends - Year 1 FCs $13,650 10,200 (4,100) * x * Rate (1.10H 1.16Av (1.22C Dollars $ 15,015 11,832 5,002 Calculated net assets 21,845 Actual net assets - Dec. 31/4 $19,750 x (1.22C 24,095 - Year 1 to be reported in other comprehensive Exchange gain income) $ 2,250 S Company - December 31/4 Plant and equipment (net) Inventory Monetary assets FCs $18,000 12,100 19,200 x x * Rate 1.220 1.220 1.220 Dollars $ 21,960 14,762 23,424 $49,300 $ 60,146 X 1.10H 10,000 9,750 Ordinary shares Retained earnings Accumulated foreign exchange adjustments Bonds payable Current liabilities 11,000 10,845 2,250 19,520 16,531 16,000 13,550 x x ( 1.22C (1.22C 49,300 $ 60,146 x Sales Cost of sales Other expenses 210,000 (132,600) (67,200) 1.16Av ( 1.16Av 1.16Av 243,600 153,816 77,952 x Profit $10,200 x 1.16AV 11,832 Other comprehensive income - unrealized exchange gain 2,250 Comprehensive income $ 14,082 Calculation of consolidated profit - Year 4 P Company - profit Less: Dividends from S Company Dollars $ 31,802 4,502 27,300 11,832 S Company - profit Less: Acquisition diff. amort Goodwill 232

116 11,484 Consolidated profit $ 38,784 Profit attributable to: Shareholders of P Company Non-controlling interest 37,636 1,148 Consolidated Income Statement - Year 4 Sales $ 655,400 Cost of sales Goodwill impairment loss Other expenses 360,216 116 256,284 616,616 | Profit Other comprehensive income 38,784 2,671 - unrealized exchange gain Comprehensive income $ 41,455 Profit attributable to: Shareholders of P Company Non-controlling interest 37,636 1,148 Comprehensive income attributable to: Shareholders of P Company Non-controlling interest 40,040 1,415 Consolidated Retained Earnings Statement - Year 4 Balance Jan. 1 $ 39,298 Profit 37,636 76,934 23,200 Dividends Balance Dec. 31 $ 53,734 Consolidated Statement of Financial Position At Dec. 31. Year 4 Plant and equipment Goodwill Inventory Monetary assets $ 92,956 1,904 49,162 54,976 $ 198,998 Common shares Retained earnings Accumulated foreign exchange adjustment Non-controlling interest Bonds payable Current liabilities $ 34,400 53,734 2,404 2,819 66,020 39,621 $ 198,998 Now assume that P Company is a private company. It uses ASPE and has chosen to use the equity method to report its investment in S Company. Calculate the balance in the investment account at December 31, Year 4, assuming that S Company's functional currency is the Canadian dollar. Balance in investment account $ 22,972 (c) Prepare the consolidated financial statements using the worksheet approach for the two scenarios for functional currency. (Values in the first two columns and last column (the "parent", "subsidiary" and "consolidated" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Elimination" entries columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all de bit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all e amount and enter this amount in the credit column of the worksheet. Leave no cells blank - be certain to enter "0" wherever required.) CONSOLIDATED FINANCIAL STATEMENT WORKING PAPER RAV COMPANY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, YEAR 4 Eliminations Dr. Cr. Income Statements - Year 4 Dividend income P Company 11,84,6502 S Company 43,600 0 4,502 416,302 243,600 Cost of Sales 206,400 178,100 152,907 77,832 Other expenses 220