HI5020 Online Exam On Corporate Accounting

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Question 5 (10 marks)

On January 1, 2019, Horizon Corporation, an UK based company acquired Spectacular Company as a subsidiary in Australia with an initial investment cost of 360,000 Australian dollars (AUD). Spectacular's December 31, 2019, trial balance in AUD is as follows:

	Debit (AUD)	Credit(AUD)
Cash at bank	42,000
Accounts Receivable	120,000
Receivable from Horizon	30,000
Inventory	150,000
Machinery	600,000
Accumulated Depreciation		60,000
Accounts Payable		72,000
Debenture liability		300,000
Share Capital		360,000

Sales		900,000
Cost of goods sold	420,000
Depreciation Expense	60,000
Operating Expense	180,000
Dividend paid	90,000
Total	1,692,000	1,692,000

Other Information:

The receivable from Horizon is denominated in AUD. Horizon's books show a AUD 24,000 payable to Spectacular.
Purchases of inventory goods are made evenly during the year. Items in the ending inventory were purchased November 1.
The Machinery is depreciated by the straight-line method with a 10-year life and no residual value. A full year's depreciation is taken in the year of acquisition. The equipment was acquired on March 1.
The dividends were declared and paid on November 1.
Exchange rates between AUD and Euro (€) were as follows:

January 1	AUD 1 = € 0.73
March 1	AUD 1 = € 0.74
November 1	AUD 1 = € 0.77
December 31	AUD 1 = € 0.80
2019 Average	AUD 1 = € 0.75

AUD is the functional currency.

Required:

Prepare a schedule translating the December 31, 2019, trial balance from AUD to €. (8 marks)
Why is the translation adjustment reported on Horizon's other comprehensive income statement rather than on the Profit and Loss statement? (2 marks)

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