Page 481 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Supplementary objective test questions

CHAPTER 18 – FOREIGN CURRENCY TRANSLATION

18.1 Pinkerton, a US firm who uses $ as its functional currency, acquired 70% of the
£1 ordinary shares of Weezer on 1st January 2014. Weezer has a functional
currency of the Woozel (W’s). On this date, Weezer’s net assets had a book
value of W2,200,000. This was equal to fair value with the exception of land
which had a fair value of W500,000 in excess of its book value.

Pinkerton paid $8,500,000 for the shares and the fair value of a 30% holding on
1st January 2014 was W400,000. Pinkerton uses the fair value method to
calculate goodwill.

The relevant exchange rates are as follows:

1st January 2014 $2.50 : W1

31st December 2014 $2.00 : W1

Average rate for year ending 31st December 2014 $2.30 : W1

What is the total exchange difference on goodwill to be recorded in the
consolidated financial statements? Give your answer to the nearest $000.

(Show a gain as a positive figure and a loss as a negative figure)

18.2 TITI reports in $ and has an 80% interest in its subsidiary CAM, whose
functional currency is PGK (Papua New Guinea Kina).

The net assets of CAM are PGK 4,526,000 as at 31st December 20X4 and
PGK 5,289,000 as at 31st December 20X5.

CAM made a profit for the year of PGK 763,000. No gains or losses are held in
CAM’s other comprehensive income.

Goodwill arising on the acquisition of CAM totalled PGK 2,500,000. The
goodwill is not impaired as at 31st December 20X5.

Relevant exchanges rates are:

31st December 20X4 PGK1.6 : $1

31st December 20X5 PGK1.75 : $1

Average for 20X5 PGK1.685 : $1

473