Question

The condensed Statement of Financial Position and Income Statements of Love Co. Ltd and its overseas (foreign subsidiary Stress Co. Ltd. are shown below:

STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2017

Love Co Ltd.

Stress Co. Ltd

ASSETS	$	$	£	£
Non Current Assets:
Equipment at Cost	800		500
Less: accumulated depreciation	(350)	450	(200)	300
Investment in Scoochie’s 100 share @ £1 each		200 _____		0 ____
		650		300
Current Assets:
Inventories	800		500
Accounts Receivable	1000 _____	1800 _____	350 ____	850 _____
Total Assets		2,450		1,150
EQUITY & LIABILITIES:
Equity:
Ordinary Shares $1/£1	1,000		500
Retained earnings	850 _____	1850	350 _____	850
Long-Term Loans		200		200
Current Liabilities		400 _____ 2450		100 _____ 1150

Condensed income statement of Love Co. and its overseas subsidiary Stress Co. for the year ended December 2017.

Profit before tax	$800	£300
Tax	(450)	(175)
Profit after Tax Retained	$350	£125

The following additional information is given:

a) Depreciation is charged at a rate of 5% per annum

b) There were no loan repayments or movements in non-current assets during the year ended December 31, 2017. The opening inventory for Stress Co. was £100. Assume that inventory turnover times are very short.

c) Love Co. has had its interest in Stress Co. since the incorporation of the company.

d) The following exchange rates are applicable:
• £6 = $1 when Stress Co. was Incorporated
• £4 = $1 when Stress Co. acquired its non-current assets
• £3.5 = $1 on December 31, 2016
• £2.5 = $1 – average rate of exchange for the year ended December 31,2014

•	£1 = $1 on December 31, 2017

Required:
Prepare the summarized consolidated financial statements of the Love Co. group for the year ended December 31, 2017.

Answer 1

Income Statement - Love Company & Stress Company - Consolidated Statement

Consolidated Income Statement

	Love	Stress
Profit before tax	$800	£300/2.5 = $120
Tax	(450)	175/2.5 = 70
Profit after Tax Retained	$350	£125/2.5 = 50

Consolidated Balance Sheet

	Love	Sress Consolidated
Current Assets:
Inventories	800	500/1= $500 $1300
Account Receivables	1000	350/1 = $350 $1350
Total Current Assets	$1800	$850 $2650

	Love	Stress	Consolidated
Non - Current Assets
Equipment at Cost	800	500/4 = $125	$925
Less: accumulated depreciation	350	200/4 = $50	$400
Investment in Scoochie’s 100 share @ £1 each	200	_	_
Non Current Liabilities
Long-Term Loans	200	200/1 = 200	$400
Equity
Ordinary Shares $1/£1	1,000		$1000
Retained earnings Accumulated Other Comprehensive    Current Liabilities	850 400	100	$850 $425 $500

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