FA4 CH11 P4

Problem 11-4
FCs

Dollars

14,400)  1.10

15,840

Implied value of 100%

16,000 x 1.10

17,600)

Carrying amount of S Company’s net assets

13,000  1.10

14,300)

Acquisition differential

3,000)  1.10

3,300)

Plant and equipment

2,000)  1.10

2,200)

Goodwill

1,000)  1.10

1,100)

Cost of 90% of S Company

Allocated:

(a) The Canadian dollar is the functional currency i.e. S Company is an integrated foreign subsidiary.

C = closing rate Dec. 31/1

Av = average rate year 1

H = historical rate

FCs
Net monetary position – Jan. 1/1 *

(15,000))  1.10H

Dollars

(16,500)

Sales

100,000)  1.16Av

116,000)

Purchases (59,000 + 11,000 – 8,000)

(62,000)  1.16Av

(71,920)

Other monetary expenses **

(30,000)  1.16Av

(34,800)

(4,000)  1.22H

(4,880)

Dividends
Calculated position Dec. 31/1
Actual monetary position Dec. 31/1 ***
Exchange loss – Dec. 31/1
* 10,000 – 9,000 – 16,000
** 32,000 – depreciation expense of 20,000 / 10
*** 17,000 – 12,000 – 16,000

(12,100))
(11,000)  1.22C

(13,420))
1,320)

S Company – December 31/1
FCs

Dollars

Plant and equipment (net)

18,000)  1.10H

19,800)

Inventory

11,000)  1.19H

13,090)

Monetary assets

17,000)  1.22C

20,740)

46,000)

53,630)

10,000)  1.10H

11,000)

Ordinary shares
Retained earnings

8,000) see below

8,470)

Bonds payable

16,000)  1.22C

19,520)

Current liabilities

12,000)  1.22C

14,640)

46,000)

53,630)

Sales

100,000)  1.16Av

116,000)

Cost of sales

(59,000) calc.

(67,630)

Other expenses

(32,000) calc.

(37,000)

Exchange loss

)

(1,320))

Profit

9,000)

10,050

Retained earnings, Jan. 1

3,000)  1.10H

3,300)

(4,000)  1.22H

(4,880)

Dividends
Retained earnings, Dec. 31

8,000

8,470 (a)

Cost of sales
8,000)  1.10H

8,800)

62,000)  1.16Av

71,920)

70,000)