Reference no: EM133276022

On 1 January 2021, Kangaroo Ltd, an Australian company, acquired all of the issued shares of Star Ltd, a company incorporated in Canada as it looks to expand its operations into new overseas markets. The net assets of Star Ltd in Canadian Dollar (CAD) on that date consisted of:

		$ CAD
Share Capital		672,000
Retained Profits		280,000
Total Equity		952,000

The relevant exchange rates for the period are as follows:

1 $CAD = $AUD

2021
1 January 2021	1.12
31 December 2021	1.21
Average final quarter 2021	1.1
Average for year - 2021	1.06
2022
1 January 2022	1.12
1 April 2022	1.08
31 December 2022	1.16
Average April - December 2022	1.1
Average final quarter - 2022	1.14
Average for year - 2022	1.12

Additional information relating to Star Ltd:

a) On 1 April 2022, Star Ltd acquired new equipment for CAD $112,000. This equipment is depreciated over a 5-year period. No other additions to Property, Plant and Equipment were made since 1 January 2021, the acquisition date.

b) The interim dividend was paid on 1 April 2022 whilst the final dividend was declared on 31 December 2022.

c) Sales, purchases and expenses for the period ending 31 December 2022 occurred evenly throughout the year. However, the inventory on hand on 31 December 2022 represented purchases made in the final quarter 2022. The opening inventory, as of 1 January 2022 represented purchases made in the final quarter of 2021.

d) The loan of CAD 112,000 from Kangaroo Ltd was granted to the subsidiary, Star Ltd on 1 January 2022 for a 3-year period. The interest rate is charged at 15% per annum. Interest is required to be paid annually on 31 December each year.

e) Star Ltd adopted the revaluation model on 31 December 2021 for the category of Land. This resulted in a revaluation gain of CAD $44800 recorded as at 31 December 2021 and a further CAD $33600 gain as at 31 December 2022. This represents the Asset Revaluation Surplus balance recorded as of 31 December 2022 in the books of Star Ltd.

f) Review of last year's working papers for the period ending 31 December 2021 indicated the closing retained earnings was CAD $358,400 which was translated into AUD $232,960 based on the various rates required by the accounting standard.

Required:

The trial balance of Star Ltd for the period ending 31 December 2022 is presented on pages 4 and 5 of this question. Suppose the functional currency of Star Ltd is Canadian Dollar (CAD). Prepare the translation for the 31 December 2022 financial statements of Star Ltd (in CAD) into Australian Dollars (AUD). Please prepare necessary workings and round all numbers to the nearest whole number. (10 marks)

	$CAD	Exchange Rate	$AUD
Sales	924,000
Cost of sales
Opening stock	112,000
Purchases	672,000
Total goods available for sale	784,000
Closing inventory	(336,000)
Cost of goods sold	448,000
Gross profit	476,000
Expenses
Depreciation - equipment	43,680
Interest	16,800
Other expenses	185,920
Total Expenses	246,400
Profit before income tax	229,600
Income tax expense	(44,800)
Profit for the period	184,800
Opening Retained Earnings	358,400
Dividend paid	(44,800)
Dividend declared	(28,000)
Closing Retained Earnings	470,400

	CAD	Exchange Rate	AUD
Cash	431,200
Inventory	336,000
Accounts receivable	280,000
Equipment	246,400
Accumulated depreciation	(89,600)
Land	672,000
TOTAL ASSETS	1,876,000
Accounts Payable	190,400
Provisions	352,800
Loan payable to Kola Ltd	112,000
TOTAL LIABILITIES	655,200
NET ASSETS	1,220,800
Share Capital	672,000
Retained Earnings	470,400
Asset Revaluation Surplus	78,400
TOTAL EQUITY	1,220,800