IAS 21 · Case studies (Step 3 of 5)
Case study
Groupe Solenne SA (fictitious entity), which presents its consolidated financial statements in euros, acquired on 1 January 20X5 all of Britannia Components Ltd (fictitious entity), a UK company whose functional currency is the pound sterling (GBP). For the consolidated closing of 31 December 20X5, the consolidation team must translate the subsidiary's statements, compute the translation difference, deal with goodwill and fair value adjustments, and follow the translation reserve.
Your assignment
Explain why a translation is needed; translate assets, liabilities, income, expenses and opening equity at the rate suited to each item; assess the use of the average rate; compute the translation difference as a balancing figure and record it; translate goodwill and fair value adjustments and record the difference; check the roll-forward of the translation reserve; present the effect on the financial statements; conclude.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
4 documents: open each one to read it.
Document 1Table
Subsidiary statements in pounds sterling (GBP) at 31 December 20X5, subsidiary's own accounts without consolidation adjustments: total assets 1,000,000; total liabilities 300,000; revenue of the year 900,000; ordinary expenses 600,000; single restructuring expense of 100,000 incurred on 30 September 20X5; equity at the acquisition date (1 January 20X5) 500,000. No dividend was paid.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Total assets | £1,000,000.00 | |
| Total liabilities | £300,000.00 | |
| Revenue of the year | £900,000.00 | |
| Ordinary expenses | £600,000.00 | |
| Single restructuring expense | £100,000.00 | |
| Equity at the acquisition date | £500,000.00 | |
| Closing rate (EUR per 100 GBP) | 120% | |
| Average rate of the year (EUR per 100 GBP) | 115% | |
| Rate of 30 September 20X5 (EUR per 100 GBP) | 118% | |
| Historical acquisition rate (EUR per 100 GBP) | 110% | |
| Goodwill and fair value adjustment | £190,000.00 | |
| Same amount at the historical rate | €209,000.00 | |
| Translation reserve expected (check) | €82,000.00 | |
| Travel costs | €6,500.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Subsidiary statements in pounds sterling
Rates given by the case
Acquisition file
Travel costs
16 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
Why must the subsidiary's statements be translated, and which rate suits each item?
Task 2Calculation
Translate the assets.
Part 1 · Calculation
Translate the assets.
Task 3Calculation
Translate the liabilities.
Part 1 · Calculation
Translate the liabilities.
Task 4Professional judgement
Is the average rate acceptable for income and ordinary expenses? Justify.
Task 5Calculation
Translate the revenue.
Part 1 · Calculation
Translate the revenue.
Task 6Calculation
Translate the ordinary expenses.
Part 1 · Calculation
Translate the ordinary expenses.
Task 7Calculation
Translate the single expense.
Part 1 · Calculation
Translate the single expense.
Task 8Calculation
Translate the opening equity.
Part 1 · Calculation
Translate the opening equity.
Task 9Calculation
Compute the translation difference as a balancing figure.
Part 1 · Calculation
Compute the translation difference as a balancing figure.
Task 10Journal entries
Record the translation difference.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 11Calculation
Translate goodwill and the fair value adjustment at the closing rate.
Part 1 · Calculation
Translate goodwill and the fair value adjustment at the closing rate.
Task 12Calculation
Compute the translation difference on goodwill and the adjustment.
Part 1 · Calculation
Compute the translation difference on goodwill and the adjustment.
Task 13Journal entries
Record that difference.
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 14Calculation
Check the roll-forward of the translation reserve.
Part 1 · Calculation
Check the roll-forward of the translation reserve.
Task 15Effects on the financial statements
What is the effect of the entries on the financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 16Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 18).
Document this file
These working papers use the data and results of this case.
Normative references