Northern Inc. is a Canadian company whose functional and reporting currency is the Canadian dollar. Northern purchased 100% of the common shares of Koala Corp., an Australian company, on January 1, 20X5.

Koalas comparative statement of financial position as at December 31, 20X8, and statement of comprehensive income for the year ended December 31, 20X8, follow, in Australian dollars (A$):

Other pertinent facts follow:

1. Both companies report their financial results in accordance with IFRS and have a common year end of December 31.

2. Koalas sales were made, and other expenses incurred, evenly throughout the year.

3. Koala uses the FIFO cost formula to value its inventories.

4. Koala purchased A$3,000,000 of inventory on January 1, 20X8, A$5,500,000 of inventory on April 1, 20X8, and the remaining inventory on December 15, 20X8.

5. The plant, equipment, and land assets reported on Koalas statement of financial position as at December 31, 20X7, were all acquired on January 1, 20X5. Koala purchased an additional A$200,000 of equipment on January 1, 20X8, and brought it into use on that date. All plant and equipment is depreciated on a straight-line basis over eight years, and Koala does not use the half-year rule. The estimated residual value of these assets is A$0.

6. Koala declared dividends on December 15, 20X8. The dividends were paid on December 31, 20X8.

7. Significant exchange rates:

December 31, 20X4

A$1.00 = C$1.0114

January 1, 20X5

A$1.00 = C$0.9899

December 31, 20X6

A$1.00 = C$0.9904

December 31, 20X7

A$1.00 = C$0.9855

January 1, 20X8

A$1.00 = C$0.9823

April 1, 20X8

A$1.00 = C$0.9755

December 15, 20X8

A$1.00 = C$0.9712

December 31, 20X8

A$1.00 = C$0.9768

Average rate for 20X7

A$1.00 = C$0.9782

Average rate for 20X8

A$1.00 = C$0.9759

Transfer the template from the Project Data worksheet titled Q4 FX translation into an Excel spreadsheet to complete some of the requirements below. If necessary, add additional rows to the worksheet.

Required #1

Assume that Koalas functional currency is the Canadian dollar, and:

The Canadian dollar equivalent of the closing inventory on December 31, 20X7, was C$504,576.

The Canadian dollar equivalent of Koalas retained earnings as at December 31, 20X7, was C$1,737,758.

All components of long-term debt are monetary liabilities.

a) Calculate the foreign exchange gain or loss on Koalas monetary items for 20X8 and make note of whether it is a gain or a loss. (2.5 marks)

b) Translate Koalas statement of comprehensive income for the year ended December 31, 20X8. (2 marks)

c) Reconcile the change in Koalas translated retained earnings for the year ended December 31, 20X8. (1 mark)

d) Translate Koalas statement of financial position as at December 31, 20X8. (2.5 marks)

Required #2

Assume that Koalas functional currency is the Australian dollar, and:

The closing inventory on December 31, 20X7, was purchased at an average rate of A$1.00 = C$0.9845.

The Canadian dollar equivalent of Koalas retained earnings as at December 31, 20X7, was C$1,795,450.

Koalas cumulative translation adjustment in reserves as at December 31, 20X7, was a net deficit of C$65,370.

a) Calculate the foreign exchange gain or loss on Koalas net assets for 20X8 and make note of whether it is a gain or a loss. (1.5 marks)

b) Translate Koalas statement of comprehensive income for the year ended December 31, 20X8. (1 mark)

c) Reconcile the change in Koalas translated retained earnings for the year ended December 31, 20X8. (1 mark)

d) Translate Koalas statement of financial position as at December 31, 20X8. Provide a reconciliation of the cumulative translation adjustment figure. (1.5 marks)

Koala Corp. Statement of financial position As at December 31 Cash Accounts receivable Inventory Land Plant and equipment Accumulated depreciation 20x8 A$ 326,000 1,340,000 458,000 995,000 1,400,000 (625,000 A$ 3,894.000 20X7 A$ 411,000 1,186,000 512,000 995,000 1,200,000 (450,000 A$ 3.854.000 Accounts payable Long-term debt Common shares Retained earnings $ 229,000 825,000 1,000,000 1,840,000 A$ 3.894.000 $ 244,000 850,000 1,000,000 1.760,000 A$ 3.854.000 1 Koala Corp. Statement of comprehensive income For the year ended December 31, 20x8 Sales revenue A$ 15,800,000 A$ 512,000 9,426,000 (458,000 Cost of goods sold: Beginning inventory Purchases Ending inventory Cost of goods sold Depreciation expense Other expenses Total expenses Net income 9,480,000 175,000 5,865,000 15,520,000 280,000 A$ Koala Corp. Statement of financial position As at December 31 Cash Accounts receivable Inventory Land Plant and equipment Accumulated depreciation 20x8 A$ 326,000 1,340,000 458,000 995,000 1,400,000 (625,000 A$ 3,894.000 20X7 A$ 411,000 1,186,000 512,000 995,000 1,200,000 (450,000 A$ 3.854.000 Accounts payable Long-term debt Common shares Retained earnings $ 229,000 825,000 1,000,000 1,840,000 A$ 3.894.000 $ 244,000 850,000 1,000,000 1.760,000 A$ 3.854.000 1 Koala Corp. Statement of comprehensive income For the year ended December 31, 20x8 Sales revenue A$ 15,800,000 A$ 512,000 9,426,000 (458,000 Cost of goods sold: Beginning inventory Purchases Ending inventory Cost of goods sold Depreciation expense Other expenses Total expenses Net income 9,480,000 175,000 5,865,000 15,520,000 280,000 A$