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 (NZ$) for consolidation into the Pavlova Group Ltd. financial statements. Far Lap Income Statement for the year ended 31 December 2018 Sales Purchases A$ A$ 2,200,000 310,000 1,000,000 Cost of Sales Gross Profit Selling & Administration Ex 405,000 550,000) (100,000) tion OLD ation NEW e Total Ex Gain on Sale of Land Net Profit Before Tax Income Tax Net Profit After Tax 665 1,415,000 995,000 250,000 Retained Ea Dividends Retained Ea Balance Sheet as at 31 December 2018 Share Capital Retained E Total Eq 1,000,000 2,095,000 280,000 Term Liabilities Total Liabilities & E Plant & E Plant & Equipment Accumulated Depreciation OLD Plant & E Plant &E Plant & Eq Cost OLD 1,600,000 (580,000) 150,000 t Cost NEW NEW value 155,000 Total Non-current Assets Cash at Bank 160,000 445,000 Total Current Assets Total Assets Other information No additional shares have been issued since Far Lap was established. Income Tax was incurred evenly through the year. Selling and Administration Expenses were incurred evenly through the year Far Lap bought equipment during the year for A$150,000 financed by cash. During the current year Far Lap sold land for A$1,300,000 cash. The original price paid for this land was A$625,000 and the land had been purchased when the subsidiary had been established. Relevant exchange rates are as follows: . . Relevant Exchange Rates When Capital was contributed (subsidiary was established) and original land and When Opening Inventory was purchased At the start of the year When new equipment was purchased When land was sold Average rate for the When Closing Inventory was purchased When Dividends were paid At the end of the year .75 0.80 0.80 0.83 0.88 0.86 0.87 0.86 0.90 and ear REQUIRED: (a) Assuming that the functional currency of Far Lap is the A and the presentation currency is the New Zealand dollar (NZS), the financial statements will be translated using the method described at and around paragraph 39 of NZ IAS 21. This method is sometimes called the "presentation currency method" or the "closing rate method" The opening balance for retained earnings in NZ$ 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 NZS? (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 wil 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) ranslate 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