MAA725 T1 2019: Translation Process of Bunnings (NZ) Ltd, Wesfarmers

This report examines the translation process employed by Wesfarmers Limited to incorporate the financial results of its New Zealand subsidiary, Bunnings (NZ) Ltd, into its consolidated financial statements. The core issue revolves around the difference between Bunnings (NZ) Ltd's functional currency (NZD) and Wesfarmers' presentation currency (AUD). The report details the application of Australian Accounting Standard AASB 121, which governs the effects of changes in foreign exchange rates. It outlines the methods used to translate transactions, income, expenses, assets, and liabilities from NZD to AUD, including the use of exchange rates prevailing at the transaction date or balance sheet date. The report also covers the treatment of exchange differences, particularly those related to monetary items and foreign currency borrowings used as hedges. Furthermore, it addresses the translation of goodwill and fair value adjustments arising from the acquisition of the foreign operation, and the elimination of intra-entity profits during consolidation. The report references relevant sources including the Wesfarmers annual report and Australian Accounting Standards Board documents.

TRANSLATION PROCESS OF
BUNNINGS (NZ) LTD
IN THE CONSOLIDATED FINANCIAL STATEMENTS OF
WESFARMERS LIMITED
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CONTENTS
BASIS OF PREPARATION OF FINANCIAL STATEMENTS OF WESFARMERS..........3
TRANSLATION PROCESS OF FUNCTIONAL CURRENCY TO THE PRESENTATION CURRENCY....3
REFERENCES.............................................................................................................................................. 5
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BASIS OF PREPARATION OF FINANCIAL STATEMENTS OF
WESFARMERS
Wesfarmers’s financial report has been prepared in accordance with the corporation’s act 2001,
Australian Accounting standards and other dictum of Australian Accounting Standards Board
(AASB) and complies with International Financial Reporting Standards (IFRS) that are issued by
the International Accounting Standards Board (IASB). The financial report is a general purpose
report which has been prepared on a historical cost basis. Only investments held by associates,
financial instruments and available-for-sale investments have been prepared using fair value. The
financial report of Wesfarmers is presented in Australian Dollar (AUD) which is rounded to the
nearest million dollars. (Wesfarmers.com.au, 2019)
TRANSLATION PROCESS OF FUNCTIONAL CURRENCY TO THE
PRESENTATION CURRENCY
Wesfarmers Limited and its Australian subsidiaries’ functional and presentation currency is
Australian dollars. The functional currency of overseas subsidiaries of Wesfarmers limited i.e.
Bunning (NZ) Limited is in New Zealand dollars.
Bunning (NZ) Limited has presented its financial statements in NZD and its Parent company
Wesfarmers’s presentation and functional currency is AUD. Here Bunnings (NZ) Limited’s
functional currency differs from the presentation; therefore it translates its results and financial
position into the presentation currency for the purpose of consolidation. For this, it has to use
The Accounting Standard AASB 121 The Effects Of Change In Foreign Exchange Rates which
is under section 334 of the Corporation act 2001 prepared by the Australian Accounting
Standards Board. This standard applies to annuals reports prepared on or after 1st July 2011 but
before 1st July 2012. The relevant amendments made by AASB up to and including 11 may
2011 have been incorporated. (Aasb.gov.au. 2019)
The results and financial position of Bunnings (NZ) Limited will be translated into a presentation
currency AUD using the following method:
(a) Initially, the transactions in foreign currencies are recorded in NZD i.e. the transactional
currency at the exchange rate prevailing at the date of the transaction. At the balance sheet date,
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Monetary assets and liabilities denominated in foreign currencies are translated at the rate of
exchange prevailing.
(b) Income and expenses for each statement of comprehensive income or separate income
statement presented (i.e. including comparatives) shall be translated at exchange rates at the
dates of the transactions. (Anon, 2019)
(c) All exchange differences in the consolidated financial report other than the exchange
differences on foreign currency borrowings are taken into the income statement. Exchange
differences on foreign currency borrowings provide a hedge against net investment in a foreign
entity. Initially, these are taken into equity and at time of their disposal they are recognized in the
income statement. Tax charges and credits associated to exchange differences on those
borrowings are also recognized in equity. The assets and liabilities of these overseas subsidiaries
at the reporting date are translated into the presentation currency i.e. AUD of Wesfarmers
Limited at the exchange rate prevailing at the balance sheet date. The exchange differences that
arise due to the retranslation are taken directly to a separate component of equity. (Wesfarmers,
2019).
(d) At the date of the transaction the rate that approximates the rate of exchange, for example,
the average rate prevailing for that period is considered to translate income and expense items.
However, the use of average rate will be inappropriate if the rate of exchange fluctuates
significantly. Any goodwill that arises on the acquisition of a foreign operation and any fair
value adjustments to the carrying amounts of assets and liabilities arises on the acquisition of that
foreign operation shall be treated as assets and liabilities of the foreign operation.
(Legislation.gov.au, 2019)
(e) The intra-entity profits are to be eliminated as part of the consolidation; the exchange rate in
effect on the date when the underlying transaction took place will be applied.
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REFERENCES
Anon, (2019). [ebook] Available at:
https://www.aasb.gov.au/admin/file/content102/c3/AAS20A_12-87.pdf [Accessed 24 Apr.
2019].
Aasb.gov.au. (2019). [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB121_07-04_COMPfeb07_02-07.pdf
[Accessed 24 Apr. 2019].
https://www.accaglobal.com, A. (2019). IAS 21 the effects of changes in foreign exchange rates |
ACCA Global. [online] Accaglobal.com. Available at:
https://www.accaglobal.com/in/en/member/discover/cpd-articles/corporate-reporting/ias21-
exchange.html [Accessed 25 Apr. 2019].
Anon, (2019). [online] Available at:
http://www.mca.gov.in/Ministry/notification/pdf/AS_11.pdfhttp://www.mca.gov.in/Ministry/
notification/pdf/AS_11.pdf [Accessed 25 Apr. 2019].
Legislation.gov.au. (2019). AASB 121 - The Effects of Changes in Foreign Exchange Rates -
August 2015. [online] Available at: https://www.legislation.gov.au/Details/F2015L01580
[Accessed 25 Apr. 2019].
Iasplus.com. (2019). Australia. [online] Available at:
https://www.iasplus.com/en/jurisdictions/oceania/australia [Accessed 28 Apr. 2019].
Wesfarmers.com.au. (2019). [online] Available at: https://www.wesfarmers.com.au/docs/default-
source/reports/2013-annual-report.pdf?sfvrsn=0 (2019). [Accessed 25 Apr. 2019].
Xrb.govt.nz. (2019). [online] Available at: https://www.xrb.govt.nz/dmsdocument/277
[Accessed 28 Apr. 2019].
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