On 1 October 2016, Tasman Bhd acquired 75% interest in the equity capital of Bering Plc which is located at Sicily Island. Tasman Bhd paid RM7,000,000 to acquire its interest in Bering Plc. At the date of acquisition, the retained profit and general reserve of Bering Plc were SC400,000 and SC1,000,000 respectively. The local currency of Bering Plc is in SC and the company has voluminous sales transactions with Tasman Bhd.

The draft financial statements of Bering Plc for the year ended 30 September 2019 are as follows:

Statement of financial position as at 30 September 2019

	SC000
Non-current assets
Property, plant and equipment	7,200
Current assets
Inventory	1,800
Trade receivables	1,000
Bank	640
	10,640
Equity and liabilities
Ordinary shares	6,000
General reserve	1,000
Retained profit	2,600
Current liabilities
Trade payables	560
Short term loan	480
	10,640

Statement of profit or loss for the year ended 30 September 2019

	SC000
Turnover	10,800
Cost of sales	(1,440)
Gross profit	9,360
Operating expenses	(6,420)
Profit before taxation	2,940
Taxation	(1,060)
Net profit for the year	1,880

Additional information:

1. The property, plant and equipment were acquired by Bering Plc on 1 February 2018 except a piece of land costing SC1,200,000 which was acquired on 1 February 2016.

1. Included in the operating expenses is depreciation for the year amounted to SC1,020,000.

1. The inventory on 1 October 2018 was valued at SC1,740,000

1. Exchange rates:

SC to RM1

1 February 2016 1.15

1 October 2016 1.20

1 February 2018 1.25

1 October 2018 1.50

30 September 2019 2.00

Average rate for the year 1.90

On the date the opening inventory was acquired 1.45

On the date the closing inventory was acquired 1.80

Required:

1. Identify the two categories of foreign operations. Give any three factors that determine the functional currency of the foreign operation.

(5 marks)

1. Determine the most appropriate method in translating the financial statements of Bering Plc in accordance with MFRS 121, The Effects of Changes in Foreign Exchange Rates.

(2 marks)

1. Calculate the difference on exchange arising from the translation of the financial statements.

(15 marks)

1. Compute the goodwill arising on acquisition of Bering Plc to be disclosed in the Consolidated Statement of Financial Position Sheet as at 30 September 2019.