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2021 Final Exam Question

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591 views2 pages

2021 Final Exam Question

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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SEMESTER ONE 2021

SECTION A: FOREIGN CURRENCY

Scenario Information

You are a trainee accountant at Global Investments (GI), a New Zealand listed company. The
senior financial accountant, Alison Carter, asks you to translate the financial statements of
Scots Ltd (SL), a wholly owned subsidiary of GI based in the United Kingdom.

SL is located in the UK. On 1 January 2020, GI acquired all of SL’s issued shares. SL prepares
its financial statements using its local currency, the British Pound (£). SL’s balance sheet as
at 1 January 2020 is as follows:

Contributed Capital £2,000,000


Retained Earnings 200,000
Accounts Payable 200,000
Total Liabilities and Equity 2,400,000

Plant Assets (net) 1,900,000


Inventory 100,000
Cash and accounts receivable 400,000
Total Assets 2,400,000

SL’s financial statement as at 31 December 2020 (its fiscal year end) as well as the relevant
exchange rates are provided in the Excel file for this examination paper.

Additional information:
• GI made an additional capital contribution to SL of £400,000 on 1 February 2020.
• Dividends were declared and paid on 13 July 2020.
• The opening inventory was on hand at the time of the acquisition of SL. The closing
inventory was acquired on 1 December 2020.
• The 2020 depreciation expense for the plant assets on hand at the time of the
acquisition was £190,000. On 1 July 2020, GI acquired additional plant assets of
£500,000 which were depreciated by £25,000 in 2020.
• Sales, purchases, and other expenses were incurred evenly throughout the financial
year.

Relevant exchange rates were as follows:


1 January 2020: £1.00 = NZ$2.0
1 February 2020: £1.00 = NZ$1.9
1 July 2020: £1.00 = NZ$1.8
13 July 2020: £1.00 = NZ$1.7
1 December 2020: £1.00 = NZ$1.5
31 December 2020: £1.00 = NZ$1.4
Average 2020 financial year £1.00 = NZ$1.6
QUESTION 1
Refer to the scenario information in Section A and answer the following question:

The senior financial accountant has asked you to draft a brief memo explaining the criteria
that the company should consider in determining SL’s functional currency, as required by NZ
IFRS 21.
(4 marks)

QUESTION 2

Refer to the scenario information in Section A and answer the following question:

Using the Excel worksheet template provided, translate SL’s financial statements into New
Zealand dollars (NZ$) assuming:

a. The NZ dollar is the functional currency of SL.


(8 marks)
b. The British Pound (£) is the functional currency of SL.
(8 marks)

[TOTAL = 20 MARKS]

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