HI5020 Corporate Accounting - Online Exam

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:

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:

• AUD is the functional currency.

Required:

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