The balance sheets of UK plc and its subsidiaries France SA and US Inc at 30 September 1998 are given below:
|
UK plc |
France SA |
US Inc |
||||
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
Fixed assets |
||||||
|
Tangible assets |
26000 |
95000 |
56000 |
|||
|
Investments (Notes 1 & 2) |
25500 |
– |
– |
|||
|
51500 |
95000 |
56000 |
||||
|
Current assets |
||||||
|
Stocks (Note 3) |
15000 |
44000 |
25000 |
|||
|
Debtors (Note 4) |
10000 |
30000 |
16000 |
|||
|
Cash in hand |
2000 |
6000 |
3000 |
|||
|
27000 |
80000 |
44000 |
||||
|
Current liabilities |
||||||
|
Trade creditors (Note 4) |
6000 |
12000 |
8000 |
|||
|
Taxation |
3000 |
6000 |
4000 |
|||
|
Proposed dividend |
2000 |
8000 |
3000 |
|||
|
Bank overdraft |
8000 |
10000 |
9000 |
|||
|
19000 |
36000 |
24000 |
||||
|
Net current assets |
8000 |
44000 |
20000 |
|||
|
c/f |
59500 |
139000 |
76000 |
|||
|
b/f |
59500 |
139000 |
76000 |
|||
|
Long term loans |
(20000) |
– |
(25000) |
|||
|
39500 |
139000 |
51000 |
||||
|
Capital and reserves |
||||||
|
Share capital (Note 5) |
20000 |
80000 |
32000 |
|||
|
Profit and loss account |
19500 |
59000 |
19000 |
|||
|
39500 |
139000 |
51000 |
||||
Notes to the financial statements
Note 1
UK plc has owned 100% of the ordinary share capital of France SA since incorporation, subscribing for it at par. The date of incorporation of France SA was 25 May 1990. France SA acts as a selling agent for products manufactured in the UK by UK plc and has no manufacturing capacity of its own. UK plc has negotiated an overdraft facility for France SA and has guaranteed the overdraft. Apart from this overdraft, France SA receives all its funding from UK plc.
Note 2
On 30 September 1992, when the reserves of US Inc stood at $8 million, UK plc purchased 24 million shares in US Inc for $35 million. US Inc has a product range which is similar to that of UK plc and France SA, but is targeted more specifically towards the needs of the US market. The stock is manufactured in the USA, and US Inc negotiates its own day to day financing needs with US financial institutions. The $25 million loan which was outstanding at 30 September 1998 was originally taken out on 30 June 1976 for a 30 year period. The accounting policy of UK plc is to amortise premiums on acquisition over a 20 year period. In the case of US Inc, the first write off took place in the year ended 30 September 1993.
Note 3
The stocks of France SA were acquired from UK plc on 31 August 1998. They represent a consignment which cost UK plc £3.6 million to manufacture but were invoiced to France SA at a price of 44 million Francs. This price represented the sterling transfer price of £4 million translated at the spot rate of exchange in force at 31 August 1998. The stocks of US Inc were all manufactured locally. The stock in hand of US Inc at 30 September 1998 represents 6 months’ production.
Note 4
- The debtors of UK plc include dividends receivable from France SA and US Inc. These debtors have been translated into sterling using the rate of exchange in force at 30 September 1998.
- The trade creditors of France SA comprise 12 million Francs payable to UK plc. UK plc’s debtors include the equivalent asset translated into sterling using the rate of exchange in force at 30 September 1998.
- There was no other inter company trading.
Note 5
- The shares of UK plc are £1 shares.
- The shares of France SA are 1 Franc shares.
- The shares of US Inc are $1 shares.
Note 6
The dates of acquisition of the tangible fixed assets of France SA and US Inc were as follows:
30 September 1998 – Net Book Value of Fixed Assets
|
France SA |
US Inc |
|
|
Date |
Fr million |
$ million |
|
25 May 1990 |
10000 |
2000 |
|
30 September 1993 |
45000 |
20000 |
|
30 September 1997 |
40000 |
34000 |
|
95000 |
56000 |
Note 7
Exchange rates at relevant dates were as follows:
|
Date |
£/Fr rate |
£/$ rate |
|
25 May 1990 |
10 |
2.4 |
|
30 September 1992 |
9.5 |
2.0 |
|
30 September 1993 |
9 |
1.7 |
|
30 September 1997 |
10 |
1.6 |
|
31 March 1998 |
10.5 |
1.7 |
|
31 August 1998 |
11 |
1.8 |
|
30 September 1998 |
12 |
1.8 |
Requirements
(a) Explain how the financial statements [profit and loss account and balance sheet] of France SA and US Inc will be translated into sterling for the purposes of the consolidated financial statements of UK plc. Your answer should refer to relevant Accounting Standards and should explain the treatment of the exchange difference on translation in each case.
(b) Prepare the working schedule for the consolidated balance sheet of the UK plc group at 30 September 1998. Your schedule needs to show only one figure for consolidated reserves, so a separate analysis of the exchange differences is not required.