QUESTION Geliga Bhd, a Malaysian incorporated company, acquired a 75% equity interest in an overseas subsidiary, Sabritaz Plc. on 1 October 2019. The consideration was paid in cash. At the date of acquisition, net assets of Sabritaz Plc were included in the accounts at their fair values except for the head office building of Sabritaz Plc which was revalued at MXN2 million more than its carrying value. The remaining useful life of the head office building was 25 years on that date. This revaluation value was also not yet recorded in Sabritaz Pic's books. On 1 October 2019, the rate of exchange was RM1 to MXN4.7. The main activity in Sabritaz Plc is to manufacture products in Mexico for sale in Mexico. Profits are used to reinvest in the business for expansion purposes. The remittances of cash to the Malaysian parent is in the form of dividends. The following are the financial statements of Geliga Bhd and Sabritaz Plc for year ended 30 September 2020, measured in their functional currencies: Statements of profit or loss and other comprehensive income for the year ended 30 September 2020 Geliga Bhd Sabritaz Plc RM million MXN million Revenue 2,200 1,430 Less: Cost of sales: Opening inventories 275 292 Purchases 1,741 1.172 Closing inventories (366) (439) (1,650) (1,025) Gross profit 550 405 Less: Expenses: Depreciation (62) (15) Loan interest (25) (6) General expenses (111) (176) Profit before tax 352 208 Tax expense Profit after tax 220 138 Other comprehensive income: Surplus on revaluation 176 Total comprehensive income 396 138 (132) (70) Geliga Bhd Statement of changes in equity for the year ended 30 September 2020 Ordinary shares Retained earning RM million RM million Balance bld 2.000 990 Profit for the year 220 Dividend (100) Balance c/d 2,000 1,110 Sabritaz Pic Statement of changes in equity for the year ended 30 September 2020 Ordinary shares Retained earning MXN million MXN million Balance bid 200 94 Profit for the year 138 Dividend (8) Balance cld 200 224 Statements of financial position as at 30 September 2020 Geliga Bhd Sabritaz Plc RM million MXN million Ordinary shares 2,000 200 Retained earning 1.110 224 Asset revaluation reserve 176 Long term loan 330 150 Ordinary dividend payable 100 Trade payables 220 143 3,936 725 Property plant and equipment 2,888 300 Investment property 168 55 Investment in Sabritaz Plc 50 Inventory 330 132 Trade receivables 210 110 Bank 290 128 3,936 725 Additional Information: 1. The paid-up share capital of Geliga Bhd and Sabritaz Plc consist of 2.000 million ordinary shares and 200 million ordinary shares respectively. 2. As at 30 September 2020, the fair value of the investment property of Geliga Bhd and Sabritaz Plc were RM173 million and MXN57 million respectively. Those figures are not yet accounted for in the respective books. The group adopted the fair value in measuring the investment property. 8 a b. 3. One of Sabritaz Ple's property, plant and equipment amounting to MXN12 million was acquired on 1 December 2019. The depreciation relating to that property, plant and equipment is RM0.6 million. This transaction has been recorded on Sabritaz's book. 4. All dividends were declared on 30 September 2020. However, Geliga Bhd had not recorded the dividend income and receivable from Sabritaz Plc. 5. All income and expenses are deemed to accrue evenly during the year unless stated otherwise. 6. The group measures the non-controlling interests based on its proportionate share of the net assets of the subsidiary on the acquisition date. 7. The following are the exchange rates that is relevant for the preparation of the financial statements: MXN to RM1 1 October 2019 4.7 1 December 2019 4.6 30 September 2020 5.1 Average for the year to 30 September 2020 4.9 Required: Determine the functional currency of Sabritaz Plc. and explain your choice. (3 marks) Recommend the most appropriate method to be used in translating the financial statements of Sabritaz Plc in accordance with MFRS 121, The Effects of Changes in Foreign Exchange Rates (1 mark) Calculate the gain or loss on translation of goodwill arising from the acquisition of Sabritaz Plc for the year ended 30 September 2020. (4 marks) Translate the statement of financial position and the statement of profit or loss for Sabritaz Plc into Ringgit Malaysia for the purpose of preparation of the consolidation financial statements of Geliga Bhd for the year ended 30 September 2020. (11 marks) Compute the exchange difference arising from the translation of the financial statements of Sabritaz Plc for the year ended 30 September 2020. (2 marks) Prepare the consolidated statement of profit or loss and other comprehensive income of Geliga Bhd for the year ended 30 September 2020. (8 marks) Prepare the consolidated statement of changes in equity of Geliga Bhd for the year ended 30 September 2020. (4 marks) Prepare the consolidated statement of financial position of Geliga Bhd as at 30 September d. e. f. 9. h. 2020 (7 marks) (Total: 40 Marks) QUESTION Geliga Bhd, a Malaysian incorporated company, acquired a 75% equity interest in an overseas subsidiary, Sabritaz Plc. on 1 October 2019. The consideration was paid in cash. At the date of acquisition, net assets of Sabritaz Plc were included in the accounts at their fair values except for the head office building of Sabritaz Plc which was revalued at MXN2 million more than its carrying value. The remaining useful life of the head office building was 25 years on that date. This revaluation value was also not yet recorded in Sabritaz Pic's books. On 1 October 2019, the rate of exchange was RM1 to MXN4.7. The main activity in Sabritaz Plc is to manufacture products in Mexico for sale in Mexico. Profits are used to reinvest in the business for expansion purposes. The remittances of cash to the Malaysian parent is in the form of dividends. The following are the financial statements of Geliga Bhd and Sabritaz Plc for year ended 30 September 2020, measured in their functional currencies: Statements of profit or loss and other comprehensive income for the year ended 30 September 2020 Geliga Bhd Sabritaz Plc RM million MXN million Revenue 2,200 1,430 Less: Cost of sales: Opening inventories 275 292 Purchases 1,741 1.172 Closing inventories (366) (439) (1,650) (1,025) Gross profit 550 405 Less: Expenses: Depreciation (62) (15) Loan interest (25) (6) General expenses (111) (176) Profit before tax 352 208 Tax expense Profit after tax 220 138 Other comprehensive income: Surplus on revaluation 176 Total comprehensive income 396 138 (132) (70) Geliga Bhd Statement of changes in equity for the year ended 30 September 2020 Ordinary shares Retained earning RM million RM million Balance bld 2.000 990 Profit for the year 220 Dividend (100) Balance c/d 2,000 1,110 Sabritaz Pic Statement of changes in equity for the year ended 30 September 2020 Ordinary shares Retained earning MXN million MXN million Balance bid 200 94 Profit for the year 138 Dividend (8) Balance cld 200 224 Statements of financial position as at 30 September 2020 Geliga Bhd Sabritaz Plc RM million MXN million Ordinary shares 2,000 200 Retained earning 1.110 224 Asset revaluation reserve 176 Long term loan 330 150 Ordinary dividend payable 100 Trade payables 220 143 3,936 725 Property plant and equipment 2,888 300 Investment property 168 55 Investment in Sabritaz Plc 50 Inventory 330 132 Trade receivables 210 110 Bank 290 128 3,936 725 Additional Information: 1. The paid-up share capital of Geliga Bhd and Sabritaz Plc consist of 2.000 million ordinary shares and 200 million ordinary shares respectively. 2. As at 30 September 2020, the fair value of the investment property of Geliga Bhd and Sabritaz Plc were RM173 million and MXN57 million respectively. Those figures are not yet accounted for in the respective books. The group adopted the fair value in measuring the investment property. 8 a b. 3. One of Sabritaz Ple's property, plant and equipment amounting to MXN12 million was acquired on 1 December 2019. The depreciation relating to that property, plant and equipment is RM0.6 million. This transaction has been recorded on Sabritaz's book. 4. All dividends were declared on 30 September 2020. However, Geliga Bhd had not recorded the dividend income and receivable from Sabritaz Plc. 5. All income and expenses are deemed to accrue evenly during the year unless stated otherwise. 6. The group measures the non-controlling interests based on its proportionate share of the net assets of the subsidiary on the acquisition date. 7. The following are the exchange rates that is relevant for the preparation of the financial statements: MXN to RM1 1 October 2019 4.7 1 December 2019 4.6 30 September 2020 5.1 Average for the year to 30 September 2020 4.9 Required: Determine the functional currency of Sabritaz Plc. and explain your choice. (3 marks) Recommend the most appropriate method to be used in translating the financial statements of Sabritaz Plc in accordance with MFRS 121, The Effects of Changes in Foreign Exchange Rates (1 mark) Calculate the gain or loss on translation of goodwill arising from the acquisition of Sabritaz Plc for the year ended 30 September 2020. (4 marks) Translate the statement of financial position and the statement of profit or loss for Sabritaz Plc into Ringgit Malaysia for the purpose of preparation of the consolidation financial statements of Geliga Bhd for the year ended 30 September 2020. (11 marks) Compute the exchange difference arising from the translation of the financial statements of Sabritaz Plc for the year ended 30 September 2020. (2 marks) Prepare the consolidated statement of profit or loss and other comprehensive income of Geliga Bhd for the year ended 30 September 2020. (8 marks) Prepare the consolidated statement of changes in equity of Geliga Bhd for the year ended 30 September 2020. (4 marks) Prepare the consolidated statement of financial position of Geliga Bhd as at 30 September d. e. f. 9. h. 2020 (7 marks) (Total: 40 Marks)