QUESTION 5 - Foreign Currency Translation (5 Marks)

Alps Ltd, an Australian based reporting entity, incorporates a Pacific Island subsidiary named Matterhorn Inc. on 1 January 2012 and contributes issued capital of PI$185,000. Financial Statements for Matterhorn Inc. in PI$ relevant to year ended 31 December 2012 are as set out on page 9 with additional information as follows:

Additional information:

1. The functional currency of Matterhorn Inc. is the PI dollar (PI$).

2. The presentation currency of Alps Ltd is the Australian dollar (AUD).

3. All property, plant and equipment of Matterhorn Inc. was purchased on 1 January 2012.

4. Sales, non-inventory purchases and other expenses were incurred evenly throughout the year ended 31 December 2012.

5. Inventory held by Matterhorn Inc. at 31 December 2012 was partly purchased on 30 June 2012 (PI$25,000) and partly purchased on 30 September 2012 (PI$40,000).

6. There were no other changes in the equity of Matterhorn Inc. in the year to 31 December 2012.

7. Relevant exchange rates are as follows:

30 September 2011	PI$1.00 = AUD0.96
30 November 2011	PI$1.00 = AUD0.94
1 January 2012	PI$1.00 = AUD0.90
30 June 2012	PI$1.00 = AUD1.15
30 September 2012	PI$1.00 = AUD1.10
30 November 2012	PI$1.00 = AUD1.45
31 December 2012	PI$1.00 = AUD1.28
Average for 2012 year	PI$1.00 = AUD1.05

Required:

In accordance with AASB 121, prepare worksheets to translate the financial statement of Matterhorn Inc. into AUD, and calculate the value of the following (show all workings):

1. The net profit of Matterhorn Inc. for the year ended 31 December 2012 expressed in AUD.
2. The net assets of Matterhorn Inc. as at 31 December 2012 expressed in AUD.
3. The Foreign Currency Translation Reserve relevant to Matterhorn Inc. that will be included in Alps Ltd Group consolidated financial statements relevant to year ended 31 December 2012.

QUESTION 5 Continued

Matterhorn Inc. Statement of comprehensive income for the year ended 31 December 2012
	PI$
Sales	125,000
Less Cost of Goods Sold
Opening Inventory	0
Purchases	110,000
Closing Inventory	(65,000)
Total Cost of Goods Sold	(45,000)
Gross Profit	80,000
Cash expenses	22,000
Depreciation	15,000
Net profit before tax	43,000
Income tax	18,000
Net Profit	25,000

Matterhorn Inc. Statement of financial position at 31 December 2012
	PI$
Current Assets
Cash and cash equivalents	20,000
Trade and other receivables	45,000
Inventories	65,000
Total Current Assets	130,000
Non-current Assets
Property, plant and equipment	150,000
Less: Accumulated depreciation	15,000
Total Non-current Assets	135,000
Total Assets	265,000
Current Liabilities
Trade payables	55,000
Total Liabilities	55,000
Total Net Assets	210,000
Shareholders Equity
Issued capital	185,000
Retained earnings	25,000
Total Shareholders Equity	210,000