QUESTION 1 Pavlova Group Ltd., a New Zealand based company, obtained 100% interest in an Australian company Far Lap some years ago. You have been given the following information to enable you to translate the financial statements of Far Lap into New Zealand dollars (NZS) for consolidation into the Pavlova Group Ltd. financial statements. Far Lap Income Statement for the year ended 31 December 2018 A$ A$ 2,200,000 Sales Opening 310,000 1,000,000 Purchases Closing Cost of Sales Gross Profit Selling & Administration Expenses 1,405,000 (550,000) (100,000) NEW Total Expenses Gain on Sale of Land Net Profit Before Tax Income Tax Net Profit After Tax Opening Retained Earnings Dividends 665,000) 1,415,000 995,000 250,000 Retained Balance Sheet as at 31 December 2018 Share Capital Retained Earnings Total Equity Current Liabilities Term Liabilities Total Liabilities & Equity 1,000,000 095,000 2,095,000 280,000 400,000 Plant & Equipment Cost OLD Plant & Equipment Accumulated Depreciation OLD Plant & Equipment Cost NEWW Plant & E Plant & Equipment- Land Total Non-current Assets Cash at Bank Accounts Receivable Inve Total Current Assets Total Assets 1,600,000 (580,000) 150,000 nt Accumulated reciation NEW value 1,155,000 500,000 160,000 445,000 Other information: No additional shares have been issued since Far Lap was established. . Income Tax was incurred evenly through the year. Average Rate .Selling and Administration Expenses were incurred evenly through the year. Average Rate Far Lap bought equipment during the year for A$150,000 financed by cash. During the current year Far Lap sold land for AS1,300,000 cash. The original price paid for this land was A$625,000 and the land had been purchased when the subsidiary had been established. . Relevant exchange rates are as follows: Relevant Exchange Rates When Capital was contributed (subsidiary was established) and original land and plant and equipment purchased When Opening Inventory was purchased -ASNZD become 0.75 0.80 0.80 0.83 0.88 0.86 0.87 0.86 0.90 stronger, AS become weaker Bad Overseas Assets, Good Overseas Liabilities At the start of the year 1/1/2018 When new equipment was purchased When land was sold Average rate for the year When Closing Inventory was purchased When Dividends were paid At the end of the year 31/12/2018 REQUIRED (a) CTR) the ment, osed nt of Functional Currency of Subsidiary is different from the Parent Assuming that the functional currency of Far Lap is the A and the presentation currency is the New Zealand dollar (NZS), the financial statements will be translated using the method described at and around paragraph 39 of NZ IAS 21. This method is sometimes called the "presentation currency method" or the "closing rate method The opening balance for retained earnings in NZS was $320,000 on 1 January 2018 when using the paragraph 39 method. What is the opening balance of the "Foreign Currency Translation Reserve" (FCTR) at 1 January 2018 expressed in NZ$? (5 marks) (b) Translate the financial statements of Far Lap for the year ending 31 December 2018 using the method prescribed at and around paragraph 39 of the Standard in Worksheet 1 of Answer Booklet. (10 marks) (c) Perform a reconciliation of the foreign currency translation reserve (FCTR) as at 31 December 2018 (paragraph 39 method (5 marks) (d) Now assume that the functional currency of Far Lap is the New Zealand dollar. In this case, the financial statements of Far Lap for the year ending 31 December 2018 will be translated using the method prescribed at and around paragraph 23 of NZ IAS 21 This method is sometimes called the "functional currency method" or the "temporal method". Calculate the opening balance of the Retained Earnings of Far Lap in SNZ on 1 January 2018 (5 marks) (e) Translate the financial statements for Far Lap for the year ended 31 December 2018 using the method prescribed in paragraph 23 of NZ IAS 21 in Worksheet 2 of Answer (10 marks) Perform a reconciliation of the foreign currency translation gain/(loss) (paragraph 23 (5 marks) (Total 40 marks) Booklet. (f) method) for the year ended 31 December 2018