AC AC2091 Financial Reporting Assignment 4

QUESTION (15 MARKS)

On 1 January 2011, Long John Ltd acquired 80% of the ordinary shares of a subsidiary,
Silver Inc for £600,000. Silver Inc does its accounts in a currency called “bans”. On 1
January 2011, the retained profits account of Silver Inc shows 192,000 “bans” and the share
capital of Silver Inc was 1,440,000 “bans”.

A summary of the statement of comprehensive income and statement of financial position of

Silver Inc are as follows:

Statement of comprehensive income for year ended 31 December 2017

“bans” “bans”
Revenue 684,000
Cost of sales
Opening inventory 90,000
Purchases 360,000
Closing inventory (135,000) 315,000

Gross profit 369,000

Depreciation (36,000)
Other expenses (9,000)
Profit before tax 324,000
Tax (63,000)
Profit after tax 261,000

Statement of financial position as at 31 December 2017

“bans”
Non-current assets 3,240,000
Inventories 135,000
Cash 549,000
Net Assets 3,924,000

Share capital 2,160,000

Retained profit 1,764,000

Total equity 3,924,000

The following information is also available:

1. The retained earnings brought forward after translation for Silver Inc is £179,100 under
the temporal method and £358,200 under the closing rate method.
2. Impairment of 20% of the value of the goodwill is to be provided for only in 2017.

1
3. Non-current assets were all acquired on 1 January 2011.
4. Opening inventories were acquired on 12 November 2016 and closing inventories were
acquired on 15 December 2017.
5. Exchange rates are as follows

1 January 2011 £1 = 10 “bans”

12 November 2016 £1 = 5 “bans”
1 January 2017 £1 = 6 “bans”
average for 2017 £1 = 4 “bans”
15 December 2017 £1 = 2 “bans”
31 December 2017 £1 = 3 “bans”

Required:

a) Translate the statement of comprehensive income for the year ended 31 December 2017
and the statement of financial position as at 31 December 2017 for Silver Inc using the
temporal method. (12 marks)

b) Calculate the goodwill in the consolidated statement of financial position for Long John
Ltd as at 31 December 2017 using the temporal method. (3 marks)

2
Layout

(a)
Statement of financial position as at 31 December 2017
“bans” Temporal method
Rate £
Non-current assets
Inventories
Cash
Net Assets

Share capital
Retained profit
Total equity

Statement of comprehensive income for year ended 31 December 2017

Temporal method

“bans” Rate £
Revenue
Cost of sales
Opening inventory
Purchases
Closing inventory

Gross profit
Depreciation
Foreign exchange difference
Other expenses
Profit before tax
Tax
Profit after tax
Retained b/f (given)
Retained c/f from SOFP

3
(b)
Goodwill
£ rate Bans
Cost
Net assets acquired
80% of Share capital
80% of Ret profits

Impairment @20%
Balance

Note: Temporal method; use historical rate

£