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Explain the rule for translating the financial statements

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Question 1 - Large Ltd owns 100% of the shares of Small Ltd. These shares were acquired on 1 July 2019 for $1 million when the shareholders' funds of Small Ltd were:

Share capital $500,000

Retained earnings $400,000

$900,000

All assets of Small Ltd were fairly stated at acquisition date, except for a land that had a fair value $50000 more than carrying value.

During the 2019/2020 financial year, Small Ltd sold inventory to Large Ltd at a sales price of $200,000. The inventory cost Small Ltd $120,000 to produce. At 30 June 2010 half of the stock was still on hand with Large Ltd. In addition, Small Ltd paid an interim dividend of $40,000 out of post-acquisition profits to Large Ltd during the 2009/2010 financial year. The tax rate is 30%.

Based on the above information, prepare the consolidation journal entries that Large Ltd will need to pass on 30 June 2020.

Question 2 - (a) Explain the concepts of Local Currency, Functional Currency and Presentation Currency with suitable examples.

(b) Explain the rule for translating the Financial Statements of Foreign Operations from Local Currency to Functional Currency.

(c) Explain the rule for translating the Financial Statements of Foreign Operations from Functional Currency to Presentation Currency.

Reference no: EM132994909

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