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2018 Final Exam

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18 views3 pages

2018 Final Exam

Uploaded by

joehe2625
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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QUESTION 1 – FOREIGN CURRENCY

You are an intern in the financial section of NZ International Ltd (NZIL), a New Zealand
listed company based in Napier. Senior accountant, Sandra Jose, asked you to translate the
financial statements of Reforma Mexicana Ltd (RML), a wholly owned subsidiary of NZIL
based in Mexico City.

NZIL acquired all of the issued shares of RML on 1 January 2017. RML prepares its financial
statements using its local currency, the Mexican Peso. RML’s balance sheet on 1 January
2017 is as follows:

Contributed Capital 5,000,000

Retained Earnings 1,000,000

Accounts Payable 500,000

Total Liabilities and Equity 6,500,000

Plant Assets (net) 4,000,000

Inventory 500,000

Cash and accounts receivable 2,000,000

Total Assets 6,500,000

The financial statements of RML at 31 December 2017, the fiscal year end, are shown on
page xx of this examination paper.

Additional information:

• Relevant exchange rates were as follows:

1 January 2017: Peso 1.00 = NZ$ 0.10


20 June 2017: Peso 1.00 = NZ$ 0.12
20 December 2017: Peso 1.00 = NZ$ 0.14
31 December 2017: Peso 1.00 = NZ$ 0.20
Average 2017 financial year: Peso 1.00 = NZ$ 0.16

Question 1 continued over page…

Page 2 of 16 MBS
Question 1 continued

• Dividends were declared and paid on 20 June 2017.


• The opening inventory was on hand at the time of the acquisition of RML. The closing
inventory was acquired on 20 December 2017.
• 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.

Required:

a) Using the worksheet provided on page 17 of this examination paper, translate the
RML Ltd financial statements into New Zealand dollars (NZ$). The Mexican Peso is
the functional currency of RML. (15 marks)

b) Prepare a brief note, which explains to Sandra the exchanges rates you used to
translate the revenue, expense, dividend, equity, liability, and assets items on the
financial statements and any foreign currency gains/losses or translation reserve.
(5 marks)

[TOTAL: 20 MARKS]

Page 3 of 16 MBS
WORKSHEET FOR Q1.a Student Name …………………………………Student ID ……………..
Local Currency Presentation Currency
Income statement Peso Exchange rate $NZ
Sales revenue 4,000,000
Opening Stock 500,000
Purchases 800,000
Ending inventory -300,000
Cost of Goods Sold 1,000,000
Gross Profit 3,000,000
Depreciation -500,000
Other expenses -400,000
-/+ foreign exchange gain/loss (if applicable)
Net Profit 2,100,000
Retained Earnings 1/1/16 1,000,000
Dividends -100,000
Retained Earnings 31/12/12 3,000,000

Page 16 of 16
STATEMENT OF FINANCIAL POSITION
Contributed Capital 5,000,000
Retained Earnings 3,000,000
Foreign Currency Translation Reserve (if applicable)
Accounts Payable 1,800,000
Total Liabilities and Equity 9,800,000
Plant Assets (net) 3,500,000
Inventory 300,000
Cash and accounts receivable 6,000,000
Total Assets 9,800,000

MBS

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