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ACCT73030- Case Assignment # 2




Question;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;20x3 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, 20x4 and 20x5;20x5;20x4;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, 20x5 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 31,20x3;1 AUS $=CD 2.17;November 30,20x4;1AUS $=CD 2.21;December 31,20x4;1AUS $=CD 2.27;Average - 20x4;1AUS $=CD 2.20;November 30,20x5;1AUS $=CD 2.31;December 31, 20x5;1AUS $=CD 2.35;Average ? 20x5;1AUS $=CD 2.29;Other relevant information for;translation purpose is as follows ?;1. The December 31, 20x4;inventories were purchased on average on November 30, 20x4 and the December 31;20x5 inventories were purchased on average on November 30, 20x5.;2. Dividends are declared on;December 31 of every year.;3. The 20x4 net income was $120,000;and the 20x4 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 31,20x5 and a translated balance sheet as at December 31, 20x5. (1+6+5=12);2.;Assume that Funny Corporation is a self-sustaining subsidiary, prepare a translated income statement for the years ended December 31,20x5 and a translated balance sheet as at December 31, 20x5. (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)


Paper#38597 | Written in 18-Jul-2015

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