A cumulative translation adjustment

Solution
1. Solution
Particulars Debit Credit
Interim Dividend
$
4,00,000
Cash
$
4,00,000
General Reserve
$
8,40,000
Dividend Payable
$
8,40,000
Retained Earnings
$
2,40,000
General Reserve
$
2,40,000
General Reserve
$
6,00,000
Bonus Shares
$
6,00,000
Bank A/c
$
3,00,00,000
Share Capital
$
3,00,00,000
2. Solution
S. No Particulars Debit Credit
(a) Sales Revenue 60000
Cost of sales 30000
Inventory 30000
Deferred tax asset 9000
Income tax expenses 9000
(b) Gain on sale of equipment 20000
(340000 )- (400000-20%)
Equipment 20000
HI5020 Online Exam T3 2019

Deferred tax asset 6000
Income tax expense 6000
Accumulated depreciation 2000
Depreciation Expenses 2000
Income tax expense 600
Deferred tax asset 600
(c ) Dividend Revenue 140000
Dividend Receivable 140000
Dividend Payable 140000
Dividend Declared 140000
(d) Cash 100000
Loan from Liam 100000
Interest Payable 4000
Interest Receivable 4000
HI5020 Supplementary Exam T3 2019 2

3.Solution
(a) Current Tax Liability at 30 June 2019
Total current tax liability = provision for annual leave = $90,000.
(b) Deferred tax asset/ Liability at 30 June
2019
Carrying
amount Tax Base Taxable temporary
difference
Deductible
temporary
difference
Assets
Plant and Equipment( Net) 1400000 1440000 40000
Account receivable 320000 350000 30000
Prepayments 20000 0 20000
Liabilities
Provision for Annual Leave 90000 0 90000
Provision for entertainment
expenses 0 6000 6000
Total Temporary
Differences 26000 160000
Deferred tax liabilities
@30% 7800
Deferred tax assets@ 30% 48000
(c) Journal entry for recording income tax for the year.
Particulars Debit Credit
Deferred tax asset 48000
Income tax 40200
Deferred tax liability 7800
HI5020 Supplementary Exam T3 2019 3

4. Solution
Particulars
Amount in
$
Amount in
$
Cash flow from operating activities 690000
Payment to suppliers -1500000
Prepaid insurance -90000
Decrease in account receivable 22,80,000
Cash flow from Investing activities -522000
Sale of plant asset 240000
Purchase of plant asset -162000
Investment in short term money market -600000
Cash flow from financial activities 492000
Loan Borrowed 180000
Issue of ordinary shares 720000
Dividend received 200000
Interest on term deposit received 40000
Payment of loan including interest -528000
Dividend paid -120000
Net cash flow 660000
Opening cash and cash equivalents 1400000
Closing cash and cash equivalents 2060000
HI5020 Supplementary Exam T3 2019 4

5. Solution
a) A schedule Showing translation of trial balance from AUD to € as on December 31, 2019.
Particulars Debit -AUD
Credit-
AUD
Conversio
n Debit -€ Credit-€
Cash at bank 42,000 0.8 33600
Accounts Receivable 1,20,000 0.8 96000
Receivable from
Horizon 30,000 0.8 24000
Inventory 1,50,000 0.77 115500
Machinery 6,00,000 0.8 480000
Accumulated
Depreciation 60,000 0.8 48000
Accounts Payable 72,000 0.8 57600
Debenture liability 3,00,000 0.73 219000
Share Capital 3,60,000 0.73 262800
Sales 9,00,000 0.75 675000
Cost of goods sold 4,20,000 0.75 315000
Depreciation Expense 60,000 0.8 48000
Operating Expense 1,80,000 0.75 135000
Dividend paid 90,000 0.77 69300
Exchange Rate
Difference 54,000
Total 16,92,000 16,92,000 13,16,400 13,16,400
(b) . In accordance with requirement of financial accounting standards board that any gain and loss
which is resulted from variation of foreign exchange transaction is required to be adjusted over time
through accumulated other comprehensive income section of a translated balance sheet. A
cumulative translation adjustment account is known for indication of such variation.
.A part of Statement 52 of FASB helps investors to differentiate between actual operating gains and
losses and those generated via currency translation. Hence, translation adjustment needs to be
reported on comprehensive income statement rather than profit and loss account. (Investopedia.
2020)
References:
1. Investopedia. 2020. Cumulative Translation Adjustment – CTA Definition. [online] Available
at: <https://www.investopedia.com/terms/c/cumulative-translation-adjustment.asp>
[Accessed 28 March 2020].
2. Bragg, S. and Bragg, S., 2020. Consolidation Accounting — Accountingtools. [online]
AccountingTools. Available at: <https://www.accountingtools.com/articles/how-does-
consolidation-accounting-work.html> [Accessed 28 March 2020].
HI5020 Supplementary Exam T3 2019 5