On 1 July 2019, an Australian company Afghanistan Ltd acquired all the issued shares of Brazil Ltd, a company incorporated in the United States (US). At this date Brazil Ltd had the following account balances:
| US$ | |
| Bank loan | 4 000 |
| Plant and equipment | 4 200 |
| Cash and debtors | 400 |
| Inventory | 2 000 |
| Retained earnings | 600 |
Other account balances for Brazil Ltd at 30 June 2020 are as follows:
| US$ Dr | US$ Cr | |
| Share capital | 2 000 | |
| Retained earnings | 1 200 | |
| Bank loan | 4 000 | |
| Accounts payable | 1 600 | |
| Sales | 10 000 | |
| Plant and equipment | 3 800 | |
| Cash and debtors | 3 200 | |
| Inventory | 1 800 | |
| Purchases | 8 000 | |
| Administration expense | 300 | |
| Depreciation expense | 400 | |
| Income tax expense | 500 |
Exchange rates for the year ending 30 June 2020 are as follows:
| 1 July 2019 | US$1 = A$1.50 |
| 30 June 2020 | US$1 = A$1.70 |
| Average for year | US$1 = A$1.60 |
| Ending inventory acquired (before year end) | US$1 = A$1.65 |
Required:
1) US dollar is the functional currency of Brazil Ltd and the Australian dollar is the presentation currency of the group:
a) Prepare the Statement of profit or loss and other comprehensive income and the statement of financial position of the foreign operation at 30 June 2020. (10 marks)
b) Calculate the foreign currency translation reserve. (5 marks)
explain each step with calculations
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