Foreign subsidiaries financial statements are generally prepared in the local currency of the country it is operates in: Financial Accounting & Reporting 3 Assignment, SU, Malaysia

University Sunway University (SU)
Subject Financial Accounting & Reporting 3

Question 1

A foreign subsidiary’s financial statements are generally prepared in the local currency of the country it operates in. Given the situation that a holding company is Malaysian and has a subsidiary in Indonesia, explain the following:

  • TWO (2) different methods of converting the Indonesian rupiah into Malaysian ringgit
  • The determining indicators in selecting the foreign currency conversion method for the Indonesian subsidiary. Explain any FIVE (5)

Question 2

Renjatan Berhad is a palm oil manufacturing company based in Malaysia. It has 2 subsidiaries in Indonesia, an oil palm plantation company and also a palm oil manufacturing company. The oil palm plantation Hasil Bagus Pvt Ltd has been established 6 years ago and has been selling raw palm oil to both Renjatan and other local (Indonesian) manufacturers since its inception. Recently, Renjatan set up another subsidiary which is a palm oil Manufacturing company to cater for the growing demand for manufactured palm oil. This palm oil manufacturing company, Sawit Kualitas Pvt Ltd buys all of its raw materials from Hasil Bagus Pvt Ltd and exports all of its products to the parent company in Malaysia. The technology used by Sawit Kualitas was provided by Renjatan Berhad. Renjatan Berhad also provides the working capital and machinery used by Sawit Kualitas.

Using the conversion indicators as a guide to support your basis of argument, determine which method of foreign currency should be used to convert the financial results of Sawit Kualitas before consolidating its results with the parent company Renjatan Berhad.

Question 3

The following are financial statements for Haneda Berhad and its foreign subsidiary Zala Pvt Ltd in Z country for the year ended 31 December 2021:

Statements of Profit & Loss for the year ended 31 December 2021

Haneda (RM’000)Zala (Z’000)
Sales11,0002,000
-) Cost of sales

Opening inventory

+) Purchases

-) Closing inventory

 

1,000

6,000

(1,000)

 

 

 

 

(6,000)

 

100

800

(100)

 

(800)

Gross profit5,0001,200
-) Expenses(1,200)(500)
-) Depreciation(800)(300)
Net profit3,000400

Statements of Financial Position as of 31 December 2021

Haneda (RM’000)Zala (Z’000)
Investment in Zala1,200
Property, plant & equipment4,8003,000
Inventory1,000100
Trade receivables1,800500
Bank600200
9,4003,800
  
Ordinary shares2,000
Retained profit b/f3,4001,000
Retained profit for the year3,000400
Non-current loan200
Trade payables400200
 
Rates of exchangeZalaRM
1 January X731
The average rate for the year2.51
31 December X721
Date closing inventory purchased2.251
Date opening inventory purchased31
1 January X4 – date PPE acquired41

Required:

  • Calculate goodwill on consolidation. Determine NCI on the acquisition date.
  • Translate Statement of Financial Position of Zala Pvt Ltd
  • Translate Statement of Profit & Loss of Zala Pvt Ltd
  • Determine the exchange difference in the statement of financial position and statement of profit and loss
  • Prepare a consolidated statement of profit and loss for the year ended 31 December 2021
  • Prepare consolidated statement of financial position as of 31 December 2021

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