Reference no: EM132640853

FOREIGN CURRENCY TRANSLATION

On 1 April 2019, Kakapo Investments Limited (a New Zealand company) acquired all of the issued shares in Grizzly Tech Limited - a manufacturing company domiciled in Canada that sells its products primarily within the Canadian market. Summary financial information for Grizzly Limited is presented below.

Grizzly Tech Limited

Summary financial information for the year ended 31 March 2020

                                                               CAD $

Sales                                        680,000

Cost of Sales

Inventory at 1/4/19                    (20,000)

Manufacturing costs                 (437,500)

Inventory at 31/3/20                   48,000

Gross Profit                               270,500

Expenses

Depreciation                            (80,000)

Other                                     (60,000)

Net Profit before tax                 130,500

Income tax expense                 (35,000)

Net Profit after tax                   95,500

Retained earnings at 1/4/19         0

Retained earnings at 31/3/20   95,500

Share Capital                      200,000

Total equity                         295,500

Property, plant & equipment  180,000

Accumulated depreciation     (60,000)

                                        120,000

Land                                   90,000

Inventory                           48,000

Accounts receivable             90,000

Cash                                  60,000

Total assets                      408,000

Accounts payable               (22,500)

Long-term liabilities            (90,000)

Net assets                        295,500

Additional Information:

(1) No property, plant, and equipment were acquired during the period from 1 April 2019 - 31 March 2020.

(2) Inventory on hand at balance day was manufactured throughout the last quarter of the year to 31 March 2020.

(3) All revenue and expense items were earned or incurred evenly throughout the year.

(4) The opening Net Assets of Grizzly Tech Limited at 1 April 2019 was CAD$ 200,000.

(5) Exchanges rates (NZ$1 = CAD$) for the period were:

1 April 2019 $0.50

31 March 2020 $0.67

Average for financial year $0.63

Average rate for quarter to 31 March 2020 $0.57

Required:

Question (a) Explain the meaning of "functional currency" and "presentation currency" and how these concepts may be relevant to Kakapo Investments Limited and Grizzly Tech Limited.

Question (b) Assuming the functional currency of Grizzly Tech Limited is Canadian dollars, translate the summary financial information of Grizzly Tech Limited as at 31 March 2020 into the presentation currency of New Zealand dollars. Round your answers to the nearest whole dollar. Show your answers on the enclosed template on Page 4. The Foreign Currency Translation Reserve Account (FCTR) has been added to the worksheet for the adjusting balance you will calculate in (c) below.

Question (c) Calculate and verify the FCTR translation adjustment. Show your workings in your examination answer booklet.