PROFE03 ACCOUNTING FOR BUSINESS COMBINATIONS

ACTIVITY CHAPTER 8

Answer the following problem. Show your solutions in good form.

On November 29, 20x1, ABC Co. placed a non-cancellable purchase order for the
importation of a machine with a purchase price of €20,000 from a company based
in France. The contract term is FOB shipping point. The machine was shipped on
December 1, 20x1 and was received by ABC on December 15, 20x1. The purchase
price was settled on January 3, 20x2.

The following are the exchange rates:

November 29, 20x1..............................................................₱55:€1
December 1, 20x1.................................................................₱58:€1
December 15, 20x1..............................................................₱57:€1
December 31, 20x1..............................................................₱60:€1
January 3, 20x2.....................................................................₱61:€1

Requirement: Provide the journal entries.

Use the following information for the next three questions:

Entity A has just started its operations on January 1, 20x1. On this date, Entity A’s
equity consisted of ₱2M share capital, which were issued also on this date. Entity A’s
functional currency is the Philippine peso (₱). However, it wishes to present its 20x1
financial statements into Japanese yen (¥). The following information was gathered on
December 31, 20x1, after a year of operations.

Total assets ₱10M

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 PROFE03 ACCOUNTING FOR BUSINESS COMBINATIONS

Total liabilities ₱5M

Share capital 2M

Retained earnings 3M

Total liabilities and equity ₱10M

Income ₱7M

Expenses (4M)

Profit ₱3M

Relevant exchange rates:

January 1, 20x1 (historical rate for the share capital) ₱1: ¥2

Average rate ₱1: ¥3

December 31, 20x1 (closing rate) ₱1: ¥4

1. How much is the translated total assets?

a. ¥40M
b. ¥36M
c. ¥20M
d. ¥18M

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2. How much is the translated total equity?

a. ¥40M
b. ¥36M
c. ¥20M
d. ¥18M

3. How much is the translated profit or loss?

a. ¥9M
b. ¥7M
c. ¥6M
d. ¥12M

SOLUTION:

@PHP @JYP Exchange Rate Used

Total Asset 10,000,000 40,000,000 4

Total Liabilities 5,000,000 20,000,000 4

Share Capital 2,000,000 4,000,000 2
Retained Earnings 3,000,000 16,000,000
Total Liabilities 10,000,000 40,000,000

Income 7,000,000 7,000,000 21,000,000 3

Expenses (4,000,000) (4,000,000) (12,000,000) 3
Profit 3,000,000 9,000,000

Translation Adjustments equals:

@JYP

Total assets 40,000,000.00

Total Liabilities (20,000,000.00)
Share Capital (4,000,000.00)
Retained Earnings (PNL) (9,000,000)
Difference (CTA) 7,000,000 (part of Shareholders Equity