NZ parent company established a Mexican Subsidiary some years ago. For the financial year ending 31 December 2021, you have been given the following information to enable you to translate the nancial statements of Mexican Subsidiary from Peso into the New Zealand dollar (NZ$), in order to consolidate with the NZ Group nancial statements. o No additional shares were issued since Mexican Subsidiary was established. a All Plant and Equipment was purchased when Mexican Subsidiary was established. During the current year, Mexican Subsidiary sold some plant and equipment for Peso 500,000. The cost of this disposed plant and equipment was Peso 600,000 and the associated accumulated depreciation was Peso 200,000. 0 During the year, Land with the value of Peso 1,000,000 was purchased using cash. This was the first purchase of land for Mexican Subsidiary. . Selling and other expenses and income tax expense were incurred evenly through the year. . Relevant Exchange rates and Peso nancial statements are as follows: Exchange rates 1NZ$ = Peso At date of acquisition 10 When opening inventory was acquired 13 At the beginning of the year, 1 January 2021 13.5 When some plant and equipment was sold 12 When land was purchased 14 Average rate for year to 31 December 2021 14.5 when closing inventory was acquired At dividend payment date At the end of the year, 31 December 2021 16 Mexican Subsidiary Income Statement for the year ending 31 December 2021 Peso Sales 2,000,000 Opening inventory 500,000 Purchases 1,300,000 Closing inventory 650,000 Cost of good sales i, Gross Profit 850,000 Selling and other expenses -200,000 Depreciation expense -1 30M Gain on Sale of plant and equipment m, Net profit before tax 620,000 Income tax expense -150,000 Net profit after tax ELM Opening Retained earnings 800,000 Dividends -200,000 Closing Retained earnings LEM Mexican Subsidiary Balance Sheet as at 31 December Peso 2021 Assets Cash 400,000 Accounts receivable 900,000 Inventory @,M Total Current Assets 1,950,000 Plant & Equipment - Cost 2,000,000 Plant & Equipment - Accumulated Depreciation , Plant & Equipment - Net 1,550,000 Land 1.M.M Total Non-current Assets 2, 550,000 Total Assets 4,500,000 Liabilities Accounts payable 300,000 Bank loan 1,200,000 Total Liabilities 1,500,000 Equity = A-L 3,000,000 Share capital 1,930,000 Retained earnings 1,w,m Total 90"\")! .M.LIO QUESTION 1: Accounting for translation of foreign operations (a) Assume the functional currency of Mexican Subsidiary is Peso and the group presentation currency is NZ$, the financial statements will be translated using the method described at and around paragraph 39 of NZ IAS 21. The opening balance for Retained Earnings in NZ$ is $60,000 and the opening balance for Foreign Currency translation reserve (FCTR) in NZ$ is -$50,778 (Dr) on 1 January 2021 when using the paragraph 39 method. The accountant has translated the financial statements of Mexican Subsidiary into NZ$ for the year ending 31 December 2021, but she hasn't prepared a reconciliation yet. Perform a reconciliation between the opening balance and closing balance of the "Foreign Currency Translation Reserve (FCTR)" as at 31 December 2021 using WORKSHEET 1 for your answer. Show all workings. (7 marks)
