On January 1, 2019, Horizon Corporation, an UK based company acquired Spectacular Company as a subsidiary in
Question:
On January 1, 2019, Horizon Corporation, an UK based company acquired Spectacular Company as a subsidiary in Australia with an initial investment cost of 360,000 Australian dollars (AUD). Spectacular's December 31, 2019, trial balance in AUD is as follows:
Debit (AUD)
Credit(AUD)
Cash at bank
42,000
Accounts Receivable
120,000
Receivable from Horizon
30,000
Inventory
150,000
Machinery
600,000
Accumulated Depreciation
60,000
Accounts Payable
72,000
Debenture liability
300,000
Share Capital
360,000
Sales
900,000
Cost of goods sold
420,000
Depreciation Expense
60,000
Operating Expense
180,000
Dividend paid
90,000
Total
1,692,000
1,692,000
Other Information:
The receivable from Horizon is denominated in AUD. Horizon's books show a AUD 24,000 payable to Spectacular.
Purchases of inventory goods are made evenly during the year. Items in the ending inventory were purchased November 1.
The Machinery is depreciated by the straight-line method with a 10-year life and no residual value. A full year's depreciation is taken in the year of acquisition. The equipment was acquired on March 1.
The dividends were declared and paid on November 1.
Exchange rates between AUD and Euro ()were as follows:
January 1
AUD 1 = 0.73
March 1
AUD 1 = 0.74
November 1
AUD 1 = 0.77
December 31
AUD 1 = 0.80
2019 Average
AUD 1 = 0.75
AUD is the functional currency.
Required:
a)Prepare schedule translating the December 31, 2019, trial balance from AUD to .(8 marks)
Why is the translation adjustment reported on Horizon's other comprehensive income statement rather than on the Profit and Loss statement?(2 marks)