Question

Tea Inc, an 80% subsidiary of Karkade Plc set up on 1 January 2018, prepares its accounts in the currency "$". 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 36,000 Turnover Cost of sales Opening stock Purchases Closing stock Gross profit General expenses Depreciation 21,600 21,000 (24,000) (18.600) 17,400 (600) (2,400) (3.000) 14,400 (5.400) 9,000 Profit before tax Tax Profit after tax The exchange rates are given as follows: Date Sto £ 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

Statement of Financial Position
Particulars		Amount	Rate used	Amount
		in $	$ to Euro	in Euro
Fixed assets	$ 10,800.00		5	$    54,000.00
less: accumulated depreciaiton	$ (2,400.00)		5	$ (12,000.00)
Net book value		$    8,400.00	5		€     42,000.00
Stock	$ 24,000.00		6	€ 144,000.00
Other net current assets	$   6,600.00		8	€    52,800.00
Current Assets		$ 30,600.00			€ 196,800.00
Long Term Liabilities
8% Debentures		$(18,000.00)	3		€   (54,000.00)
		$ 21,000.00			€ 184,800.00
Share Capital		$ 15,000.00	3		€     45,000.00
Profit for the year		$    9,000.00	8		€     72,000.00
Dividends Paid		$   (3,000.00)	8		€   (24,000.00)
Foreign Exchange Gain (balancing Figure)					€     91,800.00
		$ 21,000.00			€ 184,800.00
Exchange Rates as follows
1-Jan-18	3	Ordinary shares issued and opening
1-Mar-18	5	Fixed assets purchased
1-Sep-18	6	Closing Stock for 2018 bought
31-Dec-18	8	Dividends paid
Average 2018	7
The temporal method also known as the historical method is a method of foreign currency translation that uses exchange rates based on the time assets and liabilities are acquired or incurred to convert values on the books of an integrated foreign entity into the parent company's currency. The temporal method is used in instances where the local currency of the subsidiary differs from its functional currency. Differing exchange rates are used depending on the financial statement item being translated. This is the main reason of difference in foreign exchange as One Rate is not used for converting the whole items.