ACCT73030- Case Assignment # 2

ACCT73030- Case Assignment # 2
Group
Members: _____________________________________________________________________________________
Conestoga College
Advanced Accounting I: ACCT73030
Marks- 5%
(To be solved by a group of three students.)
Due
Date:
Problem: ( Marks – 25)
The Campbell Company of Canada
purchased 100% of the shares of Funny Corporation of Australia on December 31,
20×3 for developing new markets for their products. It is a public company and
operating business successfully for last five years.
Funny Corporation sells the goods imported
from Campbell Company. Campbell produces all goods for sale in Australia.
Campbell Company also dictates the operational procedures of Funny Corporation.

IAS 21 requires that financial
statements of subsidiary are to be translated into the investor company’s
presentation currency before preparing consolidated financial statements. There
are two major methods for translating the foreign operations under Canadian
GAAP. After the adoption of IFRSs in 2011, there was no change in translation
methods. IAS 21 also uses the similar approach for translating the financial
statements of foreign operations.
Funny Corporation prepares financial
statements in Australian dollar (AUS$). The financial statements for the Funny
Corporation are as follows:
Funny
Corporation
Balance
Sheet
As at
December 31, 20×4 and 20×5

20×5

20×4

Cash

$75,000

$60,000

Accounts receivable

230,000

150,000

Inventory

510,000

340,000

Fixed Assets – net

1,350,000

1,500,000

Total Assets

2,165,000

2,050,000

Current liabilities

$65,000

$45,000

Long-term debt

600,000

600,000

Common Stock

500,000

500,000

Retained earnings

1,000,000

905,000

Total of liabilities and equities

2,165,000

2,050,000

The
income statement of Funny Corporation for year ended December 31, 20×5 is given
below:

Revenues

$1,900,000

Cost of goods sold

(1,100,000)

Gross Margin

800,000

Operating expenses

(375,000)

Amortization

(150,000)

Interest expense

(40,000)

Income taxes

(90,000)

Total Expenses

(655,000)

Net Income

$145,000

IAS 21 establishes accounting
standards for the translation of the financial statements of a foreign
operation for use by a reporting enterprise (a Canadian investor).A foreign
operation 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 or different from the different from the functional currency of the Canadian reporting entity.
IAS 21 defines functional
currency as the currency of primary economic environment in which the entity
operates. The primary economic environment is normally the one in which the
entity primarily generates and expends cash.
There are many indicators for
determining the functional currency for a foreign operation. 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 operation’s
financial statement into presentation currency of investor, different exchange
rates are used for different items under different methods of translation.
A
list of relevant exchange rates at different dates is given below for
translation purpose:

December 31,20×3

1 AUS $=CD 2.17

November 30,20×4

1AUS $=CD 2.21

December 31,20×4

1AUS $=CD 2.27

Average – 20×4

1AUS $=CD 2.20

November 30,20×5

1AUS $=CD 2.31

December 31, 20×5

1AUS $=CD 2.35

Average – 20×5

1AUS $=CD 2.29

Other relevant information for
translation purpose is as follows –
1. The December 31, 20×4
inventories were purchased on average on November 30, 20×4 and the December 31,
20×5 inventories were purchased on average on November 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 for translation purpose and prepare a translated income statement for the
year ended December 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 translated income statement for the years ended December 31,20×5 and a translated balance sheet as at December 31, 20×5. (6+5=11)
Evaluation
of Business Cases as an Effective Learning Tool

Elements of Evaluation

Scale of Evaluation

5

4

3

2

1

Is it relevant to your
course contents?

Fully relevant

Very much
relevant

Relevant

Partly relevant

Not so relevant

Is it helpful to apply
theoretical knowledge to a practical situation?

Fully helpful

Very much helpful

Helpful

Partly helpful

Not so helpful

Does it encourage you to
think critically on the related issues?

Fully

Very much

Encouraging

To some extent

Not so much

Is it suitable to solve the
case in a group?

Totally

Very much

Suitable

To some extent

Not so much

Has it contributed
positively to your learning process?

Totally

Very much

Contributed

To some extent

Not so much

Total Score

**
Marks for completing the above evaluation chart and any other constructive
suggestions (2)