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Question 7 Neo Ltd, a company whose functional currency is the Rand ("R"), was established on 10 September 2011 in Country R. On 3 January 2014, 70% of Neo Ltd was acquired by the Malaysian company, Mac Berhad for R18.2 million. At the date of acquisition, the retained profits of Neo amounted to R3.2 million and the fair value of the identifiable net assets of Neo closely approximated their book values. Below are income statements for Company Mac Berhad and Company Neo Ltd. Summarised Income Statements for the year ended 31 December 2019 Mac Neo RM'000 R'000 Revenue 89,300 37,890 Cost of sales (22,000) (13,640) Gross profit 67,300 24,250 Other net expenses (30,000) (8,690) Dividend received from Neo 400 Finance cost (1,100) (600) Profit before tax 36,600 14,960 Taxation (10,400) (6,880) Profit for the year 26,200 8,080 6 Statement of Retained Profits for the year ended 31 December 2019 Mac Neo RM'000 R'000 At 1 January 2019 23,665 21,050 Profit for the period 26,200 8,080 Dividends paid (12,000) (2,800) At 31 December 2019 37,865 26,330 Summarised Balance Sheets as at 31 December 2019 Mac Neo RM'000 R'000 Non current assets Property, plant and equipment Cost 100,000 44,998 Accumulated depreciation (32,800) (9,398) Investment, at cost 10,500,000 shares in Neo 2,600 69,800 35,600 Current Assets Inventories 18,130 13,860 Receivables 15,600 16,120 Cash and bank balances 2,165 3,270 Current Liabilities Payables (17,430) (14,720) Taxation (10,400) (6,800) Net current assets 8,065 11,730 77,865 47,330 Capital and reserves Share capital Retained profits 25,000 37,865 62,865 15,000 26,330 41,330 Non current liabilities Loans 15,000 77.865 6,000 47,330 Additional Information (a) The relevant rate exchange are as follows: 31 December 2014 31 December 2018 Average for 2019 31 December 2019 R to RM1 7.0 5.6 5.1 4.6 (b) The consolidated translation reserve at 31 December 2018 consists of the following :- RM'000 Gain on retranslation of goodwill 195 Group share of exchange differences arising from 1,092 translation into presentation currency 1,287 (c) When Neo paid the dividends of R2.8 million, the exchange rate was R4.90 / RM1. Required: (a) Translate the financial statements of Neo Berhad from its functional currency to the presentation currency. [12 marks] (b) Prepare the consolidated balance sheet and consolidated income statement of Mac Bhd for the financial period ended 31 December 2019. [18 marks) Question 7 Neo Ltd, a company whose functional currency is the Rand ("R"), was established on 10 September 2011 in Country R. On 3 January 2014, 70% of Neo Ltd was acquired by the Malaysian company, Mac Berhad for R18.2 million. At the date of acquisition, the retained profits of Neo amounted to R3.2 million and the fair value of the identifiable net assets of Neo closely approximated their book values. Below are income statements for Company Mac Berhad and Company Neo Ltd. Summarised Income Statements for the year ended 31 December 2019 Mac Neo RM'000 R'000 Revenue 89,300 37,890 Cost of sales (22,000) (13,640) Gross profit 67,300 24,250 Other net expenses (30,000) (8,690) Dividend received from Neo 400 Finance cost (1,100) (600) Profit before tax 36,600 14,960 Taxation (10,400) (6,880) Profit for the year 26,200 8,080 6 Statement of Retained Profits for the year ended 31 December 2019 Mac Neo RM'000 R'000 At 1 January 2019 23,665 21,050 Profit for the period 26,200 8,080 Dividends paid (12,000) (2,800) At 31 December 2019 37,865 26,330 Summarised Balance Sheets as at 31 December 2019 Mac Neo RM'000 R'000 Non current assets Property, plant and equipment Cost 100,000 44,998 Accumulated depreciation (32,800) (9,398) Investment, at cost 10,500,000 shares in Neo 2,600 69,800 35,600 Current Assets Inventories 18,130 13,860 Receivables 15,600 16,120 Cash and bank balances 2,165 3,270 Current Liabilities Payables (17,430) (14,720) Taxation (10,400) (6,800) Net current assets 8,065 11,730 77,865 47,330 Capital and reserves Share capital Retained profits 25,000 37,865 62,865 15,000 26,330 41,330 Non current liabilities Loans 15,000 77.865 6,000 47,330 Additional Information (a) The relevant rate exchange are as follows: 31 December 2014 31 December 2018 Average for 2019 31 December 2019 R to RM1 7.0 5.6 5.1 4.6 (b) The consolidated translation reserve at 31 December 2018 consists of the following :- RM'000 Gain on retranslation of goodwill 195 Group share of exchange differences arising from 1,092 translation into presentation currency 1,287 (c) When Neo paid the dividends of R2.8 million, the exchange rate was R4.90 / RM1. Required: (a) Translate the financial statements of Neo Berhad from its functional currency to the presentation currency. [12 marks] (b) Prepare the consolidated balance sheet and consolidated income statement of Mac Bhd for the financial period ended 31 December 2019. [18 marks)