Refer to the information in P8.3 . In 20x2, Minor Company decided that its functional currency was the local currency, the FC. In 20x3, due to changes in the economic environment, which resulted in a change in the nature of the operating relationship between Major Corporation and Minor Company, it was decided that the functional currency of Minor Company be changed to the dollar with effect from 1 January 20x3. (Assume that the exchange rates on 1 January 20x3 were the same as that on 31 December 20x2.)

Required:
Translate the financial statements of Minor Company for the purpose of consolidation into Major’s presentation currency for the years ended 31 December 20x2 and 20x3.
Prepare a schedule to show the proof of translation gain or loss.

Data from P8.3

On 31 December 20x1, Major Corporation, whose functional and presentation currency is the dollar, acquired Minor Company, which operated in country X whose currency is the FC, by purchasing the entire share capital at book value. Minor’s financial statements for the years ended 31 December 20x2 and 20x3 are shown below.

Additional information

(a) At the date of acquisition, Minor Company’s equity comprised share capital of FC 230,000 and retained earnings of FC 25,000.

(b) Minor used FIFO inventory valuation. Purchases were made uniformly throughout the year. Opening inventories for 20x2 amounted to FC 87,000. Ending inventories for 20x2 and 20x3 were composed of units purchased when the exchange rates were FC 1 = $0.39 and FC 1 = $0.35, respectively.

(c) The insurance premium for a two-year policy was paid on 1 October 20x2.

(d) Fixed assets comprised plant and equipment that were acquired as follows:

(e) Plant and equipment were depreciated over ten years on a straight line basis with no residual value. A full month’s depreciation was taken in the month of acquisition.

(f) The patent was acquired on 10 July 20x2 at a cost of FC 60,000. The estimated life of the patent was five years from the date of purchase.
(g) Minor Company was incorporated on 1 January 20x1.
(h) Payments of dividends for 20x2 and 20x3 are as follows:

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Sales. Cost of goods sold. Gross profit.. Less: Depreciation expense. Amortization expense. Operating expenses.. Insurance expense... Operating profit before tax. Taxation.. MINOR COMPANY Income Statements For the Years Ended 31 December 20x2 and 20x3 Profit after tax. Dividends paid. Retained earnings, 1 January. Retained earnings, 31 December. Fixed assets (net). Patent... Current assets: Inventories. Prepaid insurance. Accounts receivable Cash MINOR COMPANY Statements of Financial Position As at 31 December 20x2 and 20x3 20x2 FC 450,000 (220,000) 230,000 (22,500) (6,000) (30,000) (12,000) (152,300) (3,200) (167,300) (197,500) 62,700 72,500 (12,700) (14,000) 50,000 (25,000) 25,000 50,000 (138,000) (800) 20x2 FC 207,500 54,000 20x3 FC 500,000 (230,000) 270,000 95,000 5,600 83,900 25,000 209,500 58,500 (25,000) 50,000 83,500 20x3 FC 277,500 42,000 88,000 2,400 82,700 13,000 186,100