Exchange Rates

ALL THREE QUESTIONS ARE COMPULSORY AND SHOULD BE ATTEMPTEDQuestion 1
On 1 January 2020, Home plc acquired 70% of the equity shares of Foreign Ltd for £400,000. Foreign Ltd.’s share capital at that date comprised 100,000 equity shares of $1 each and its retained earnings and share premium were $216,000 and $50,000 respectively.  The draft financial statements of the two entities for the year ended 31 December 2020 are shown below:

Statements of Profit or Loss for the year ended 31 December 2020.
                            Home                Foreign
                                  £                      $
Revenue                        800,000            300,000
Cost of sales                              (500,000)            (250,000)
Gross profit                        300,000                50,000
Operating expenses                    (120,000)              (60,000)
Finance costs                    (40,000)            (20,000)
Profit before tax                    140,000            (30,000)
Tax                            (40,000)                (6,000)
Profit for the year                    100,000            (36,000)

Don't use plagiarized sources. Get Your Custom Essay on
Exchange Rates
Just from $13/Page
Order Essay

Statements of Financial Position at 31 December 2020       
      £                      $
Assets
Property, plant and equipment            270,000            350,000
Investment in Foreign Ltd                400,000                                    NIL
Total non-current assets                670,000            350,000

Current assets
Inventory                        120,000            80,000
Receivables                        100,000            40,000
Total assets                        890,000                  470,000

Equity and liabilities
Equity shares of £1/$                500,000            100,000
Share premium                    100,000              50,000
Retained earnings                    150,000            180,000
Total equity                        750,000            330,000
Non-current liabilities                110,000              70,000
Current liabilities                            30,000              70,000
Total equity and liabilities                890,000            470,000                       
Question 1 continues
Question 1 continued

Note 1: Presentation currency of the group
The presentation currency of the group is UK Pound Sterling (£) and Foreign Ltd.’s functional currency is the dollar ($).

Note 2: Investment in Foreign Ltd
The fair value of Foreign Ltd.’s net assets at the date of acquisition was $40,000 higher than the carrying amount. The fair value adjustment relates to a non-depreciable land.

Note 3: Interest free loan to Foreign Ltd.               
Home plc made an interest free loan to Foreign Ltd of £30,000 on 1 January 2020.  The loan was repaid on 1 July 2020. Foreign Ltd had included the loan in non-current liabilities and had recorded the repayment at the exchange rate on 1 July 2020. No other entries have been made in the books of Foreign Ltd in respect of this transaction.

Note 4: Purchase of plant
On 1 January 2020, Home plc purchased an item of plant for $38,000 on credit from a foreign supplier. At year end, the amount payable to the supplier had not yet been settled. No exchange gain or loss in respect of this item is reflected in Home plc’s Statement of Profit or Loss for the year ended 31 December 2020.

Note 5: Inter-company sales
On 1 March 2020, Home plc sold  goods valued £20,000 to Foreign Ltd at a profit of 25% on the selling price. On 31 December 2020, one-half of these goods were still in the inventory of Foreign Ltd. The transaction was recorded by Foreign Ltd at the exchange rate ruling on 1 March 2020. A payment of £15,000 relating to the above sale was made to Home plc when the exchange rate was $1.4 to £1.  Any exchange gain or loss arising on the transaction is still held in the current liabilities of Foreign Ltd. The remaining £5,000 was included in Foreign Ltd current liabilities at the historical rate.               

Note 6-Goodwill impairment
The directors of Home plc conducted an impairment review of the goodwill arising on the acquisition of Foreign Ltd and concluded that the goodwill arising on the acquisition of Foreign Ltd had lost 20% of its value during the year. Goodwill impairment loss should be charged to operating expenses.

  Question 1 continues.

Question 1 continued

Note 7-Non-controlling interest.
The group’s policy is to value non-controlling interest at acquisition date at the fair value. The fair value of the non-controlling interest at the date of acquisition was $120,000.

Note 8-Exchange rates
The following exchange rates are relevant to the preparation of the financial
statements.

1 January 2020                            £1=$1.50
1 March 2020                            £1=$1.90
1 July 2020                                £1=$1.80
31 December 2020                            £1=$2.00
Average rate for the year ended 31 December 2020    £1=$1.80

Required
(i) Prepare the Consolidated Statement of Profit of Loss and Other Comprehensive Income for Home plc for the year ended 31 December 2020.
                                            (20 marks)

(ii) Prepare the Consolidated Statement of Financial Position for Home plc at 31 December 2020.
                                            (12 marks)

(b)      Home plc formed a new subsidiary in Libya  on 31 January 2021.  The subsidiary has issued 4 million dinars of equity capital to Home plc, which paid for these shares in Libyan dinars. The subsidiary has also raised equity capital of 500,000 Libyan dinars from external sources and has deposited the whole of the capital with a bank in an overseas country whose currency is the Yuan. The capital is to be invested in Libyan dinar denominated bonds. The subsidiary has a small number of staff and its operating expenses, which are low, are incurred in American dollars. The profits are under the control of Home plc.  Any income from the investment is either passed on to Home plc in the form of a dividend or reinvested under instruction from Home plc. The subsidiary does not make any decisions as to where to place the investments.

Required
Advise the directors of Home plc on how to determine the functional currency of the Libyan subsidiary.
                                            (6 marks)   

Total:  38 marks
Question 2
(a) Abdaless has a defined contribution pension scheme that all employees are enrolled into. However, in the year ended 31 December 2020, it set up an
Enhancement fund (Fund) as a way of enhancing post-retirement benefits of its employees. The terms of the Fund are as follows:

-Employees with more than five years’ service will be automatically enrolled into the Fund.
-Abdaless’ contributions into the Fund are voluntary. In the year ended 31 December 2020, its contributions were equivalent to 10% of wages and salaries. Whilst the fund is in existence members will, upon retirement, receive an annual sum based on their number of years of service.

Abdaless can cancel the Fund at any point. If cancelled, no further benefits or compensation will be paid to members. Abdaless has written to the local trade union to assure them of the company’s commitment to take care of its employees after they have retired. The employees have a high level of trust in the senior management and directors of Abdaless.

Required
Advise the directors of Abdaless on whether the Fund is a defined benefit or a
defined contribution pension plan.

                                                (5 marks)

(b) Abdaless operates a defined benefit post-employment plan for its employees.    
Information relating to the firm’s defined benefit plan for the year ended 31 December 2020 is as follows:                               

On 1 January 2020, the plan obligation was £200 million and the fair value of the
plan assets was £150 million.                                

The current service cost for the year ended 31 December 2020 was £30 million.

The actuary estimated the past service cost for the year ended 31 December 2020 at £15 million. The past service cost was caused by an increase in pension benefits with effect from 1 May 2020.   
                           
Abdaless paid contributions of £40 million into the pension fund.           

 

Question 2 continues.
Question 2 continued

Interest rate on high quality corporate bonds for the year ended 31 December
2020 was 10%.

The pension plan paid out benefits totalling £30 million to retired members on 31 December 2020.                               

On 31 December 2020, the plan obligation was £250 million and the fair value of
the plan assets was £190 million.                               
                           
Required                               
(i)  Compute the amounts that will appear in the Statement of Profit or Loss and
Other Comprehensive Income of Abdaless for the year ended 31 December 2020.
                                           
                                              (9 marks)

(ii)  Compute the amount that will appear in the Statement of Financial Position of Abdaless at 31 December 2020
                                            (1 mark)
           
           
                       
(c) On 1 January 2019, Abdaless granted 100,000 share options to each of its 20 key management personnel. The exercise price of the options was £20. The share options will vest if the managers remain employed on 31 December 2021. The fair value of the options at the grant date is £8. In the year ended 31 December 2019, two managers left and another three were expected to leave prior to the vesting date.

On 1 October 2020, Abdaless’ share price fell. The share option scheme was modified by reducing the exercise price to £10. The fair value of the share options was £6 immediately before the re-pricing and £8 immediately afterwards. In the year ended 31 December 2020, two managers left and four more were expected to leave prior to the vesting date.

Required
Explain how Abdaless should account for the above share-based payment transaction for each of the years ended 31 December 2019 and 2020.
                                                (6 marks)

 

      Question 2 continues.
Question 2 continued

(d) On 1 January 2020, Abdaless issued 400 million £1 bonds at par. The interest payable on the bonds is 4% per annum, payable on 31 December in arrears. The bonds are repayable at par on 31 December2029. Alternatively, the Investors have the option to convert the bonds into  a fixed number of equity shares in Abdaless on 31 December 2029.

On 1 January 2020, Abdaless recognised a financial liability of £400 million in its statement of financial position. On 31 December 2020, Abdaless recognised the interest paid on that date as a finance cost in its Statement of Profit or
Loss.

On 1 January 2020 investors would have expected an annual return of 6% on non-convertible bonds. At a discount rate of 6% per annum, the present value of £1 receivable at the end of Year 10 is 55·8 pence and the present value of £1 receivable at the end of each of Years 1 to 10 is £7·36.

Required
Explain how the above bond should have been accounted for in the books and show the effect of any corrections to the above accounting treatment.

                                                  (7 marks)

 

                                        Total :28 Marks

 

 

 

 

 

 

 

Question 3
The draft Consolidated Statement of Profit or Loss and Other Comprehensive Income of Bola plc for the year ended 31 March 2021 is as follows:
                                                    £m
Revenue                                            9,000
Cost of sales                                                  (6,500)
Gross profit                                            2,500
Distribution and administrative expenses                        (500)
Loss on sale of a subsidiary                                ( 150)
Interest payable                                                (100)
Interest receivable                                          130
Share of Associate’s Loss                                    (  40)
Profit before tax                                              1,840
Income tax                                                     (140)
Profit for the year                                              1,700

Other comprehensive income
Impairment losses on property, plant and equipment                      (120)
                                                      1,580
Profit attributable to:
Owners of the parent entity                                    1,620
Non-controlling interest                                              80
                                                      1,700
Total comprehensive income attributable to:
Owners of the parent entity                                    1,500
Non-controlling interest                                              80
                                                    1,580

 

 

 

 

 

 

 

Question 3 continues
Question 3 continued
Bola
Draft Consolidated Statements of Financial Position as at: 
        31 March 2021        31 March 2020
                                                                              £m                    £m
Assets
Goodwill                                        400            600
Property, plant and equipment                               7,200                7,320
Investment in Associate                        680            750
Other investments                                1,000            500
Inventories                                            2,550                2,800
Trade receivables                                            1,200                2,000
Interest receivable                                8                5
Cash and cash equivalents                            50                        105
Total assets                                            13,088              14,080

Equity and liabilities
Capital and reserves:                        £m                  £m
Equity shares of £1 each                                          6,000                    4,000
Share premium                                                800                400
Revaluation                                                    150                 270
Retained earnings                                             2,900                    3,500
                                        9,850                    8,170
Non-controlling interest                              900                800
                                    10,750            8,970
Liabilities
Deferred tax                                                    350                400
Loan                                                  nil                100
Government grants                                          300                        150
Trade payables                                                      320                        550
Interest payable                                                  90                           50
Income tax                                                  250                         300
Overdraft                                            1,028                      3,560
Total equity and liabilities                                  13,088          14,080

The following information is relevant:
(i) Depreciation for the period for property, plant and equipment charged to cost of sales was £136 million.

(ii) A credit of £190 million for the current year’s amortisation of government grants for capital expenditure has been included in cost of sales.

Question 3 continues
Question 3 continued

(iii) Goodwill was impairment tested on 31 March 2021 and any impairment was included in the financial statements for the year ended 31 March 2021. The goodwill impairment loss for the year relates to the only the wholly owned subsidiaries of Bola. 

(iv) On 1 April 2020, Bola acquired 60% of the equity shares of Bim for cash of £400 million. The fair value of the identifiable net assets of Bim at the date of acquisition comprised the following:
  £m
Property, plant and equipment                                360
Trade receivables                                          80
Cash at bank                                                20
Inventories                                            320
                                                780
Tax payable                                            (280)
Trade payables                                        (120)
Fair value of net assets at acquisition date                        380

The fair value of the non-controlling interest in Bim on 1 April 2020 was £150 million.

(v) Bola disposed of a wholly owned subsidiary, Tunde on 1 February 2021.  The group required the subsidiary, Tunde to prepare an interim statement of financial position at the date of the disposal. The consolidated carrying values of the net assets at the date of disposal are set out below in the summarised statement of financial position at 1 February 2021.
                                                  £m
Property, plant and equipment                                250
Inventories                                            150
Trade receivables                                            70
Cash                                                    50
                                                  520
Trade payables                                        (20)
Tax payable                                            (40)
                                                    460

The carrying amount of the gross goodwill arising on the acquisition Tunde was £80m at the disposal date.

      Question 3 continues

Question 3 continued

(vi)  The increase in the share capital during the year was due to issue of shares for cash on 1 March 2021.

(vii) Consolidated retained earnings are comprised of:
31 March 2021        31 March 2020
                            £000                        £000
Opening balance                    3,500                      3, 600
Profit for the year                    1,620                                1,500
Dividends                            (2,220)                                    (1,600)
                            2,900                        3,500
Required
(a) Prepare the Group Statement of Cash Flows for the Bola Group for the year ended 31 March 2021 using the indirect method.
                                            (28 marks)

(b)  Discuss the issues revealed by Bola’s Statement of Cash Flows for the year ended 31 March 2021.
                                            (6 marks)

    Total: 34 marks

For more information on Exchange Rates read this:https://en.wikipedia.org/wiki/Exchange_rate

Exchange Rates

Calculate your paper price
Pages (550 words)
Approximate price: -

Why Choose Us

Quality Papers

At Acme Writers, we always aim at 100% customer satisfaction. As such, we never compromise o the quality of our homework services. Our homework helpers ensure that they craft each paper carefully to match the requirements of the instruction form.

Professional Academic Writers

With Acme Writers, every student is guaranteed high-quality, professionally written papers. We ensure that we hire individuals with high academic qualifications who can maintain our quality policy. These writers undergo further training to sharpen their writing skills, making them more competent in writing academic papers.

Affordable Prices

Our company maintains a fair pricing system for all academic writing services to ensure affordability. Our pricing system generates quotations based on the properties of individual papers.

On-Time delivery

Acme Writers guarantees all students of swift delivery of papers. We understand that time is an essential factor in the academic world. Therefore, we ensure that we deliver the paper on or before the agreed date to give students ample time for reviewing.

100% Originality

Acme Writers maintains a zero-plagiarism policy in all papers. As such, Acme Writers professional academic writers ensure that they use the students’ instructions to deliver plagiarism-free papers. We are very keen on avoiding any chance of similarities with previous papers.

Customer Support 24/7

Our customer support works around the clock to provide students with assistance or guidance at any time of the day. Students can always communicate with us through our live chat system or our email and receive instant responses. Feel free to contact us via the Chat window or support email: support@Acme Writers.

Try it now!

Calculate the price of your order

You will get a personal manager and a discount.
We'll send you the first draft for approval by at
Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Samples

Our writers complete papers strictly according to your instructions and needs, no matter what university, college, or high school you study in.

Categories
All samples
Analysis (any type)
Argumentative essays
Dissertation/Dissertation chapter
Analysis (any type)
Advantages and disadvantages of lowering the voting age to thirteen
Undergrad. (yrs 1-2)
Political science
4
View this sample
Argumentative essays
Is euthanasia ethical or not?
Undergrad. (yrs 3-4)
Nursing
3
View this sample
Dissertation/Dissertation chapter
Videoconferencing as a teaching tool
Undergrad. (yrs 3-4)
Education
10
View this sample

Our Homework Writing Services

Acme Writers holds a reputation for being a platform that provides high-quality homework writing services. All you need to do is provide us with all the necessary requirements of the paper and wait for quality results.

Essays

Essay Writing Services

At Acme Writers, we have highly qualified academic gurus who will offer great assistance towards completing your essays. Our homework writing service providers are well-versed with all the aspects of developing high-quality and relevant essays.

Admissions

Admission and Business Papers

With Acme Writers, we will help you secure a position at your desired institution. Our essay writing services include the crafting of admissions papers. We will still help you climb your career ladder by helping you write the official papers that will help you secure a job. We will guide you on how to write an outstanding portfolio or resume.

Editing

Editing and Proofreading

Acme Writers has a professional editorial team that will help you organize your paper, paraphrase it, and eliminate any possible mistakes. Also, we will help you check on plagiarism to ensure that your final paper posses quality and originality.

Coursework

Technical papers

Acme Writers harbors professional academic writers from diverse academic disciplines. As such, we can develop homework writing services in all academic areas. The simplicity or complexity of the paper does not affect the quality of homework writing services.