Question
On December 31, 2020, Pine Ltd. paid 369,000 (euros) to obtain 90% of the common shares of Sandalwood Ltd., a Portuguese company. On this date
On December 31, 2020, Pine Ltd. paid 369,000 (euros) to obtain 90% of the common
shares of Sandalwood Ltd., a Portuguese company. On this date the exchange rate was
1 = C$1.38. On the day of the acquisition, the carrying amount of Sandalwoods
identifiable net assets was 360,000 and all carrying amounts were equal to fair values.
There was a goodwill impairment loss in 2021 of 3,000.
Sandalwoods income statement information and balance sheet information (in euros)
relating to the year ended December 31, 2021, are presented below:
Income statement information:
Revenue 820,000
Cost of goods sold 512,000
Depreciation expense 45,000
Other expenses 168,000
Net income 95,000
Balance sheet information:
Cash and receivables 65,000
Inventory 77,000
Property, plant and equipment (net) 640,000
Total assets 782,000
Monetary liabilities 357,000
Common shares 100,000
Retained earnings 325,000
Total liabilities and shareholders equity 782,000
Additional information
1. Exchange rates were as follows:
December 31, 2021 1= C$1.30
Average for 2021 1= C$1.34
2. Sales, purchases, and other expenses occurred evenly throughout the year.
3. A dividend of 30,000 was declared and paid on December 31, 2021.
4. All items of property, plant and equipment had been purchased by Sandalwood when
the company began on July 14, 2015, when the exchange rate was 1 = C$1.66.
5. At December 31, 2020, Sandalwood had inventory of 65,000. The inventory had
been purchased when 1 = C$1.40. Sandalwood had inventory purchases during the
year of 524,000 and these purchases occurred evenly throughout the year. The ending
inventory was purchased when the exchange rate was 1 = C$1.31.
6. At December 31, 2020, Sandalwoods monetary liabilities exceeded its monetary
assets by 390,000.
Instructions
a) Assuming the functional currency is Euros, use the presentation currency
translation method (PCT) to calculate Sandalwoods translated comprehensive
income for 2021.
b) Calculate goodwill on Pines consolidated statement of financial position using
the same assumptions as part (a).
c) Calculate the total amount, state the proper account name, and the location of
the exchange gain or loss that would appear on Pines 2021 Consolidated
Balance Sheet. Use the same assumptions as part (a) and (b).
d) Assuming the functional currency is in Canadian Dollars, use the functional
currency translation (FCT) method to:
i. Calculate the exchange gain or loss for 2021
ii. Calculate the cost of goods sold
iii. Calculate depreciation expense
Round amounts to the nearest dollar
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