Paper Ltd acquired $100\%$ shareholding of Seed Ltd$,$ a subsidiary, with

cash consideration HK$$5,600,000$ on $1$ January $20$x$1.$ The functional

currency and presentation currency of Paper Ltd is Hong Kong dollars

$($HK$$),$ while the functional currency of Seed Ltd is FC $($FC$).$

On the date of acquisition, Seed Ltd had share capital of FC $1,000,000$

and retained earnings of FC $1,300,000.$ Seed Ltd also had a building

with fair value FC $1,800,000$ while the book value was FC $1,000,000.$

The remaining useful life of the building was $20$ years with zero

residual value. The fair values of other assets and liabilities were the

same as their book value.

$20$ ACT B$407$ Advanced Financial Reporting and Analysis I

Exchange rates of HK$$/$FC are as follows:

$1$ January $20$x$1$: $1\mathrm{.}43$ HK$: $1$ FC

$31$ December $20$x$1$: $1\mathrm{.}49$ HK$: $1$ FC

Required:

a Discuss the nature of the Foreign Currency Translation Reserve

$($FCTR$)$ account and how its movements are recorded. $(10$ marks$)$

b Record the consolidation journal entries for Paper Ltd on

$31$ December $20$x$1($ignoring any effect on the deferred tax$).$

$(30$ marks$)$