Question

On December 31, 2017, M&M Ltd. paid FC400,000 to obtain 100% of the ordinary shares of Alibaba Ltd., a forging company. On this date the exchange rate was FC1 = C$1.38. On the day of the acquisition, the carrying amount of Alibaba identifiable net assets was FC360,000 and all carrying amounts were equal to fair values. No goodwill impairment has occurred. Alibaba is a self-sustaining foreign operation. The income statement information and its statement of financial position information relating to the year ended December 31, 2018, are presented below:

Income statement information:

Revenue                                         FC820,000

Cost of goods sold                               512,000

Other expenses                                    168,000

Total expenses                                     725,000

Net income                                        FC 95,000

Statement of financial position information:

Cash and receivables                                FC 65,000

Inventory                                                          77,000

Property, plant and equipment (net)    640,000

Total assets                                               FC 782,000

Monetary liabilities                                   FC 357,000

Ordinary shares                                                 ?

Retained earnings                                        325,000

Total liabilities and equity                       FC 782,000

Additional information

1.Exchange rates were as follows:

December 31, 2018 FC1= C$1.30

Average for 2018 FC1= C$1.34

2.Sales, cost of goods sold, and other expenses occurred evenly throughout the year.

3.A dividend of FC30,000 was declared and paid on December 31, 2018.

4.All items of property, plant and equipment had been purchased by Alibaba when the company began on July 14, 2005, when the exchange rate was FC1 = C$1.66.

5.At December 31, 2017, Alibaba had inventory of FC65,000. The inventory had been purchased when FC1 = C$1.40. Alibaba had inventory purchases during the year of FC524,000 and these purchases occurred evenly throughout the year. The ending inventory was purchased when the exchange rate was FC1 = C$1.31.

6.At December 31, 2017, Alibaba's monetary liabilities exceeded its monetary assets by FC390,000.

What are the consolidated financial statements of M&M Lt. for the year ending December 31, 2018 assuming Alibaba Ltd. is a self-sustaining operation?

Answer 1

M&M Limited
Income Statement for the year ended		31st December
		2018
		$
Revenue		611,940.30
Cost of sales		382,089.55
Gross profit		229,850.75
Other income
Distribution costs
Administrative expenses		11,940.30
Finance cost
Profit before tax		217,910.45
Income tax expense
Profit for the year		217,910.45
Dividend		23,076.92
Profit for the year After Dividend		194,833.52

M&M Limited
Statement of financial position as at		31st December
		2018
		$
Assets
Non-Current Assets
Property, Plant & Equipment		385542.17
Goodwill
Exchange Diff.		236020.00
		385542.17
Current Assets
Inventories		58778.63
Trade Receivables(357000-290000/cl rate)		-25384.62
Cash and cash equivalents		50000.00
		83394.01
Total Assets		704956.16
Equity and Liabilities
Equity
Share Capital
Retained Earnings	235507.25
Current year Earning	194833.52	430340.77
Total Equity		430340.77
Non-current liabilities
Long-term borrowings
Current Liabilities
Trade and other payables		274615.38
Short-term borrowings
Current portion of long-term borrowings
Current tax payable
Total current liabilities		274615.38
Total liabilities		274615.38
Total equity and liabilities		704956.16

Opening Exchange Rate	$1.38
Average Exchange Rate	$1.34
Clossing Exchange Rate	$1.30
Clossing Inventory Purchase rate	1.31
Property, Plant and eqipment	1.66

Ref. this

Particulars	Amount in $	Exchange rate
Revenue	$611,940.30	Average
Less: Cost of Goods Sold	$382,089.55	Average
Gross Profit	$229,850.75
Less: Expenses	$11,940.30	Average
Net Profit	$217,910.45
Less: Divident	$23,076.92	Clossing
Earning After Divident	$194,833.52