IAS 21 · Case studies (Step 3 of 5)
Case study
Groupe Solenne SA (fictitious entity), which presents consolidated financial statements in euros, is preparing the closing of 31 December 20X6. The file covers five situations: the functional currency of Norvik Distribution AS (fictitious entity, acquired on 1 January 20X6, Norway) and the loan the parent granted it, the purchase of a plot of land paid in a non-exchangeable currency, the translation of Norvik's statements with its goodwill, the translation of a subsidiary in a hyperinflationary economy (Qadira Retail SA, fictitious entity) and two disposals (Tamar Services Ltd and Hudson Pack Inc., fictitious entities). Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.
Your assignment
As the preparer of the file: justify the functional currency of Norvik; deal with the loan (translation, nature as net investment, separate and consolidated differences); measure and record the land taking the non-exchangeability into account; translate the statements of Norvik, compute the translation difference, the difference on goodwill and follow the reserve; translate the amounts of the hyperinflationary subsidiary; deal with the two disposals; deal with the missing information; present the effect on the financial statements and conclude.
You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.
Autonomous professional situation
As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.
10 documents: open each one to read it.
Document 1Table
Profile of Norvik Distribution AS: selling prices are set in Norwegian kroner (NOK) by Norwegian competition and regulation; costs (staff, rent, transport) are mainly in NOK; bank financing is in NOK; operating receipts are kept in NOK. To the contrary, a significant share of purchases is made from the group, in euros, and the subsidiary relies on group services (case data, no threshold).
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Loan in NOK | NOK 4,000,000.00 | |
| Rate of 1 January 20X6 (EUR per 100 NOK) | 9% | |
| Average rate of the year (EUR per 100 NOK) | 9.2% | |
| Closing rate (EUR per 100 NOK) | 9.5% | |
| Assets of Norvik | NOK 20,000,000.00 | |
| Liabilities of Norvik | NOK 6,000,000.00 | |
| Revenue of Norvik | NOK 30,000,000.00 | |
| Expenses of Norvik | NOK 27,000,000.00 | |
| Equity at acquisition | NOK 11,000,000.00 | |
| Capital of Norvik | NOK 5,000,000.00 | |
| Goodwill and adjustment | NOK 2,000,000.00 | |
| Same amount at the historical rate | €180,000.00 | |
| Translation reserve expected (check) | €94,000.00 | |
| Price of the land in ZRD | ZRD 400,000.00 | |
| Estimated rate (EUR per 100 ZRD) | 3% | |
| Amount at the last official rate | €10,000.00 | |
| Restated net assets in QXA | QXA 80,000,000.00 | |
| Latest closing rate (EUR per 100 QXA) | 0.05% | |
| Cumulative difference of Tamar | €120,000.00 | |
| Cumulative difference of Hudson | €75,000.00 | |
| Percentage of Hudson sold (in %) | 40% | |
| Moving costs | €15,000.00 |
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.
Profile of Norvik
Loan agreement with Norvik
Rates given by the case
Norvik statements in NOK
Acquisition file of Norvik
Invoice and deed of purchase of the land
Note on Qadira
Board minutes
Disposal agreements
Moving costs
Organise your work freely: deal with each point, then argue your conclusion.
Task 1Analysis
What is the situation of each entity and which workpaper applies?
Task 2Professional judgement
Justify the functional currency of Norvik (mixed indicators).
Task 3Calculation
Translate the capital of Norvik at the rate of 1 January 20X6.
Part 1 · Calculation
Translate the capital of Norvik at the rate of 1 January 20X6.
Task 4Calculation
Translate the loan at the initial rate then at the closing rate.
Part 1 · Calculation
Translate the loan at the initial rate then at the closing rate.
Result: Loan at closing in euros
Task 5Professional judgement
Does the loan form part of the net investment? Justify.
Task 6Calculation
Compute the exchange difference on the loan.
Part 1 · Calculation
Compute the exchange difference on the loan.
Task 7Journal entries
Record the difference in the separate statements then post the consolidation entry.
Part 1 · Journal entry · Journal entries
Entry 1 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 2
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 8Professional judgement
Is the ZRD currency exchangeable at the measurement date? Justify.
Task 9Calculation
Translate the land at the estimated rate and measure the effect of the estimate.
Part 1 · Calculation
Translate the land at the estimated rate and measure the effect of the estimate.
Result: Effect of the rate estimate
Task 10Journal entries
Record the acquisition of the land.
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 11Professional judgement
Is the average rate acceptable for Norvik? Justify.
Task 12Calculation
Translate the assets, liabilities, revenue, expenses and equity of Norvik.
Part 1 · Calculation
Translate the assets, liabilities, revenue, expenses and equity of Norvik.
Result: Historical equity in euros
Task 13Calculation
Compute the translation difference as a balancing figure.
Part 1 · Calculation
Compute the translation difference as a balancing figure.
Task 14Calculation
Translate goodwill and the adjustment and compute the difference.
Part 1 · Calculation
Translate goodwill and the adjustment and compute the difference.
Result: Translation difference on goodwill
Task 15Journal entries
Record the translation differences of Norvik.
Part 1 · Journal entry · Journal entries
Entry 1 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 2
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 16Calculation
Check the roll-forward of the translation reserve of Norvik.
Part 1 · Calculation
Check the roll-forward of the translation reserve of Norvik.
Task 17Calculation
Translate the restated net assets of Qadira.
Part 1 · Calculation
Translate the restated net assets of Qadira.
Task 18Calculation
Compute the amount reclassified to profit or loss for the disposal of Tamar.
Part 1 · Calculation
Compute the amount reclassified to profit or loss for the disposal of Tamar.
Task 19Calculation
Compute the share reattributed for the partial disposal of Hudson.
Part 1 · Calculation
Compute the share reattributed for the partial disposal of Hudson.
Task 20Journal entries
Record the reclassification and the reattribution.
Part 1 · Journal entry · Journal entries
Entry 1 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 2
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 21Effects on the financial statements
What is the cumulative effect of the file entries in the parent's accounts and the consolidation worksheet, before elimination of the intragroup loan?
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 22Conclusion
Write the conclusion of the file.
Points raised during the review of this file: read them as the preparer would.
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 / 27).
Document this file
These working papers use the data and results of this case.
Normative references