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:
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$ CAD
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Share Capital
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672,000
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Retained Profits
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280,000
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Total Equity
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952,000
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The relevant exchange rates for the period are as follows:
1 $CAD = $AUD
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2021
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1 January 2021
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1.12
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31 December 2021
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1.21
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Average final quarter 2021
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1.1
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Average for year - 2021
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1.06
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2022
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1 January 2022
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1.12
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1 April 2022
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1.08
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31 December 2022
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1.16
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Average April - December 2022
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1.1
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Average final quarter - 2022
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1.14
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Average for year - 2022
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1.12
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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 $232,960 based on the various rates required by the accounting standard.
Required:
The trial balance of Star Ltd for the period ending 31 December 2022 is presented on pages 4 and 5 of this question. Suppose the functional currency of Star Ltd is Canadian Dollar (CAD). Prepare the translation for the 31 December 2022 financial statements of Star Ltd (in CAD) into Australian Dollars (AUD). Please prepare necessary workings and round all numbers to the nearest whole number. (10 marks)
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$CAD
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Exchange Rate
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$AUD
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Sales
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924,000
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Cost of sales
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Opening stock
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112,000
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Purchases
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672,000
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Total goods available for sale
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784,000
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Closing inventory
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(336,000)
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Cost of goods sold
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448,000
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Gross profit
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476,000
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Expenses
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Depreciation - equipment
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43,680
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Interest
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16,800
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Other expenses
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185,920
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Total Expenses
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246,400
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Profit before income tax
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229,600
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Income tax expense
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(44,800)
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Profit for the period
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184,800
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Opening Retained Earnings
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358,400
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Dividend paid
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(44,800)
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Dividend declared
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(28,000)
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Closing Retained Earnings
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470,400
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CAD
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Exchange Rate
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AUD
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Cash
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431,200
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Inventory
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336,000
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Accounts receivable
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280,000
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Equipment
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246,400
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Accumulated depreciation
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(89,600)
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Land
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672,000
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TOTAL ASSETS
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1,876,000
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Accounts Payable
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190,400
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Provisions
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352,800
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Loan payable to Kola Ltd
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112,000
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TOTAL LIABILITIES
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655,200
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NET ASSETS
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1,220,800
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Share Capital
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672,000
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Retained Earnings
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470,400
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Asset Revaluation Surplus
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78,400
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TOTAL EQUITY
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1,220,800
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