QUESTION 1 – FOREIGN CURRENCY

Festiva Ltd (FL) is a company based in Spain and it is a wholly owned subsidiary of
Napier International Ltd (NIL), a New Zealand listed company based in Napier. You are
employed by NIL and your manager, Jess Smith, asked you to translate the financial
statements of FL.

NIL acquired all of the issued shares of FL on 1 July 2018. FL prepares its financial
statements using its local currency, the Euro.

FL balance sheet on 1 July 2018 is as follows:

Euro (000s)
Contributed Capital 300
Retained Earnings 100
Accounts Payable 150
Total Liabilities and Equity 550

Plant Assets (net) 250

Inventory 50
Cash and accounts receivable 250
Total Assets 550

Additional information:
• Relevant exchange rates were as follows:

1 July 2018: Euro 1.00 = NZ$ 2:00

10 December 2018: Euro 1.00 = NZ$ 1.80
1 May 2019: Euro 1.00 = NZ$ 1.60
30 June 2019: Euro 1.00 = NZ$ 1.50
Average financial year (18/19): Euro 1.00 = NZ$ 1.70

• Dividends were declared and paid on 10 December 2018.

• The opening inventory was on hand at the time of the acquisition of FL. The closing
inventory was acquired on 1 May 2019.
• All of the plant assets (net) account relate to plant assets that were on hand at the time
of the acquisition.
• Sales, purchases and other expenses were incurred evenly throughout the financial
year.

Question 1 continued over page…

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Question 1 continued

Required:

PART A: Translate the FL financial statements for the year ended 30 June 2019 into New
Zealand dollars (NZ$), assuming:

(1) The NZ dollar is the functional currency of FL.

(2) The Euro is the functional currency of FL.
(Use the yellow worksheet provided at the end of this examination paper)
(15 marks)

PART B: Briefly explain the meaning of functional currency and the criteria that should
be assessed to determine the functional currency of FL in accordance with NZ
IAS 21. (Jess Smith plans to present this explanation at a company board
meeting). (5 marks)

[TOTAL: 20 MARKS]

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Student Name: ..................................................................... Student ID: ......................................

QUESTION 1 – FOREIGN CURRENCY

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