howard plc acquired 2 100 000 ordinary shares of kroner 1 in pau ltd on 1 january 19 565683

Howard plc acquired 2 100 000 ordinary shares of Kroner 1 in Pau Ltd on 1 January 1985 when the reserves of Pau Ltd were Kr1 500 000 and the exchange rate was Kr10 to £1. Goodwill was eliminated against the consolidated reserves on 31 December 1985.

The profit and loss accounts of Howard plc and Pau Ltd for the year ended 31 December 1992 were as follows:

The tangible assets of Pau Ltd were acquired 1 January 1985 and are stated at cost less depreciation.

Stocks represent six months’ purchases and at 31 December 1991 the stock held by Pau Ltd amounted to Kr4760000.

Exchange rates have been as follows:

In determining the appropriate method of currency translation, it is established that the trade of Pau Ltd is more dependent on the economic environment of the investing company’s currency than on that of its own reporting currency.

Required

(a) Explain briefly how it would be established that the trade of Pau Ltd is more dependent on the economic environment of the investing company’s currency than on that of its own reporting currency.

(b) Prepare the consolidated profit and loss account for the year ended 31 December 1992 and a balance sheet as at that date, using the temporal method of translation.

(c) Calculate the amount to be included in the consolidated balance sheet of the Howard Group as at 31 December 1992 if Howard plc had sold goods to Pau Ltd on 30 September 1992 for £14 000 which had cost £10 000 and which remained unsold at 31 December 1992 using:

(i) the closing rate method;

(ii) the temporal method.