The balance sheets of UK plc and its subsidiaries France SA and US Inc at 30 September 1998 (the accounting date for all three companies) are given below:

Note 1 UK plc has owned \(100 \%\) of the ordinary share capital of France SA since incorporation, subscribing for it at par. The date of incorporation of France SA was 25 May 1990. France SA acts as a selling agent for products manufactured in the UK by UK plc and has no manufacturing capacity of its own. UK plc has negotiated an overdraft facility for France SA and has guaranteed the overdraft. Apart from this overdraft, France SA receives all its funding from UK plc.
Note 2 On 30 September 1992, when the reserves of US Inc stood at \(\$ 8\) million, UK plc purchased 24 million shares in US Inc for \(\$ 35\) million. US Inc has a product range which is similar to that of UK plc and France SA, but is targeted more specifically towards the needs of the US market. The stock is manufactured in the USA, and US Inc negotiates its own day-to-day financing needs with US financial institutions. The \(\$ 25\) million loan which was outstanding at 30 September 1998 was originally taken out on 30 June 1976 for a 30 -year period. The accounting policy of UK plc is to amortise premiums on acquisition over a 20 -year period. In the case of US Inc, the first write-off took place in the year ended 30 September 1993.
\section*{Note 3}
The stocks of France SA were acquired from UK plc on 31 August 1998. They represent a consignment which cost UK plc \(£ 3.6\) million to manufacture but were invoiced to France SA at a price of 44 million Francs. This price represented the sterling transfer price of \(£ 4\) million translated at the spot rate of exchange in force at 31 August 1998. The stocks of US Inc were all manufactured locally. The stock in hand of US Inc at 30 September 1998 represents 6 months' production.
Note 4 - The debtors of UK plc include dividends receivable from France SA and US Inc. These debtors have been translated into sterling using the rate of exchange in force at 30 September 1998.
- The trade creditors of France SA comprise 12 million Francs payable to UK plc. UK plc's debtors include the equivalent asset translated into sterling using the rate of exchange in force at 30 September 1998.
- There was no other inter-company trading.
Note 5 - The shares of UK plc are \(£ 1\) shares.
- The shares of France SA are 1 Franc shares.
- The shares of US Inc are \(\$ 1\) shares.
Note 6 The dates of acquisition of the tangible fixed assets of France SA and US Inc were as follows:

Exchange rates at relevant dates were as follows:

\section*{Requirements}

(a) Explain how the financial statements [profit and loss account and balance sheet] of France SA and US Inc will be translated into sterling for the purposes of the consolidated financial statements of UK plc. Your answer should refer to relevant Accounting Standards and should explain the treatment of the exchange difference on translation in each case.
(10 marks)

(b) Prepare the working schedule for the consolidated balance sheet of the UK plc group at 30 September 1998. Your schedule needs to show only one figure for consolidated reserves, so a separate analysis of the exchange differences is not required. ( 30 marks)

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UK plc 000 France SA US Inc 000 Fr000 Fr000 $000 $000 Fixed assets Tangible assets 26000 95000 56000 Investments (Notes 1 & 2) 25 500 51500 95.000 56000 Current assets Stocks (Note 3) 15000 44000 25000 Debtors (Note 4) 10000 30000 16000 Cash in hand 2000 6.000 3000 27000 80000 44.000 Current liabilities Trade creditors (Note 4) 6000 12000 8000 Taxation 3.000 6000 4000 Proposed dividend 2000 8000 3000 Bank overdraft 8000 10000 9000 19000 36000 24 000 Net current assets 8000 44 000 20000 Long-term loans (20000) (25000) 39 500 139 000 51000 Capital and reserves Share capital (Note 5) 20000 80000 32000 Profit and loss account 19500 59 000 19000 39 500 139000 51000