Question:

Due to an expanding market, an Australian furniture manufacturer NH Ltd established a subsidiary in Hong Kong, WK Ltd, on 1 July 2017. The financial statements of WK Ltd for the year ended 30 June 2018 are presented below.

Statement of Comprehensive Income for WK Ltd

for the year ending 30 June 2018

HK$

HK$

Sales

1,600,000

Cost of goods sold

Purchases

800,000

Less: Closing inventory

(100,000)

(700,000)

Gross profit

900,000

Less expenses:

Depreciation

150,000

Other expenses

560,000

(710,000)

Net profit

190,000

Dividends paid

(60,000)

Retained earnings 30 June 2018

130,000

Statement of financial position for WK Ltd

as at30 June 2018

HK$

HK$

Bank

30,000

Accounts receivable

60,000

Inventory

100,000

Investments

250,000

Plant and equipment

1,500,000

Less: Accumulated depreciation

(150,000)

1,350,000

Total assets

1,790,000

Accounts payable

60,000

Loan

100,000

160,000

Net assets

1,630,000

Shareholders' equity

Paid-up capital

1,500,000

Retained earnings

130,000

1,630,000

Exchange rates are provided as follows:

1 July 2017A$1.00 = HK$7.10

31 December 2017A$1.00 = HK$6.80

1 May 2018A$1.00 = HK$6.60

30 June 2018A$1.00 = HK$6.50

Average rate for the financial yearA$1.00 = HK$6.80

Average rate for period 1 Jan to 30 June 2018A$1.00 = HK$6.65

The inventory on hand at the end of the financial year has been acquired evenly over the period 1 January to 30 June 2018. All revenue and expense items are incurred evenly throughout the year. The dividend was paid on 1 May 2018.

The functional currency for WK Ltd is the HK dollar.

Required:

(a)Prepare the financial statements of WK Ltd at 30 June 2018 in the presentation currency of Australian dollars.

(b)Verify the translation adjustment.