ACCT 73030- Case Assignment # 2-The Campbell Company of Canada purchased 100% of the shares of Funny Corporation

Problem: ( Marks – 25)The Campbell Company of Canada purchased 100% of the shares of FunnyCorporation of Australia on December 31, 20×3 for developing new markets for theirproducts. It is a public company and operating business successfully for last five years.Funny Corporation sells the goods imported from Campbell Company. Campbellproduces all goods for sale in Australia. Campbell Company also dictates theoperational procedures of Funny Corporation.IAS 21 requires that financial statements of subsidiary are to be translated into theinvestor companys presentation currency before preparing consolidated financialstatements. There are two major methods for translating the foreign operations underCanadian GAAP. After the adoption of IFRSs in 2011, there was no change intranslation methods. IAS 21 also uses the similar approach for translating the financialstatements of foreign operations.Funny Corporation prepares financial statements in Australian dollar (AUS$). Thefinancial statements for the Funny Corporation are as follows:Funny CorporationBalance SheetAs at December 31, 20×4 and 20x5CashAccounts receivableInventoryFixed Assets – net120x5$75,000230,000510,0001,350,00020×4$60,000150,000340,0001,500,000Total AssetsCurrent liabilitiesLong-term debtCommon StockRetained earningsTotal of liabilities and equities2,165,000$65,000600,000500,0001,000,0002,165,0002,050,000$45,000600,000500,000905,0002,050,000The income statement of Funny Corporation for year ended December 31, 20×5 is givenbelow:RevenuesCost of goods soldGross MarginOperating expensesAmortizationInterest expenseIncome taxesTotal ExpensesNet Income$1,900,000(1,100,000)800,000(375,000)(150,000)(40,000)(90,000)(655,000)$145,000IAS 21 establishes accounting standards for the translation of the financial statementsof a foreign operation for use by a reporting enterprise (a Canadian investor).A foreignoperation is viewed as either integrated or self-sustaining for translation purposes,depending on whether the functional currency of the foreign entity is the same as ordifferent from the different from the functional currency of the Canadian reportingentity.IAS 21 defines functional currency as the currency of primary economic environment inwhich the entity operates. The primary economic environment is normally the one inwhich the entity primarily generates and expends cash.There are many indicators for determining the functional currency for a foreignoperation. When the indicators are mixed and the functional currency is not obvious,management uses its professional judgement to determine the functional currency.To translate the foreign operations financial statement into presentation currency ofinvestor, different exchange rates are used for different items under different methods oftranslation.A list of relevant exchange rates at different dates is given below for translation purpose:December 31,20×321 AUS $=CD 2.17November 30,20x4December 31,20x4Average – 20x4November 30,20x5December 31, 20x5Average 20x51AUS $=CD 2.211AUS $=CD 2.271AUS $=CD 2.201AUS $=CD 2.311AUS $=CD 2.351AUS $=CD 2.29Other relevant information for translation purpose is as follows1. The December 31, 20×4 inventories were purchased on average on November30, 20×4 and the December 31, 20×5 inventories were purchased on average onNovember 30, 20×5.2. Dividends are declared on December 31 of every year.3. The 20×4 net income was $120,000 and the 20×4 dividends were $40,000.Requirement:1. Based on the information provided determine the type of foreign subsidiary fortranslation purpose and prepare a translated income statement for the year endedDecember 31,20×5 and a translated balance sheet as at December 31, 20×5.(1+6+5=12)2. Assume that Funny Corporation is a self-sustaining subsidiary, prepare a translatedincome statement for the years ended December 31,20×5 and a translated balancesheet as at December 31, 20×5. (6+5=11)Evaluation of Business Cases as an Effective Learning ToolElements of EvaluationIs it relevant to your coursecontents?Is it helpful to applytheoretical knowledge to apractical situation?Does it encourage you tothink critically on the relatedissues?Is it suitable to solve thecase in a group?Has it contributed positively35FullyrelevantFullyhelpfulFullyTotallyTotallyScale of Evaluation432VeryRelevantPartlymuchrelevantrelevantVeryHelpfulPartlymuchhelpfulhelpfulVeryEncouragi To somemuchngextentVerymuchVerySuitableContributeTo someextentTo some1Not sorelevantNot sohelpfulNot somuchNot somuchNot soto your learning process?Total Scoremuchdextent** Marks for completing the above evaluation chart and any other constructivesuggestions (2)