Problem: On December 31, 2017, M&M Ltd. paid FC400,000 to obtain 100% of the ordinary shares of Alibaba Ltd., a forging company. On this date the exchange rate was FC1 = C$1.38. On the day of the acquisition, the carrying amount of Alibaba identifiable net assets was FC360,000 and all carrying amounts were equal to fair values. No goodwill impairment has occurred. Alibaba is a self-sustaining foreign operation. The income statement information and its statement of financial position information relating to the year ended December 31, 2018, are presented below:
Income statement information:
Revenue FC820,000
Cost of goods sold 512,000
Other expenses 168,000
Total expenses 725,000
Net income FC 95,000
Statement of financial position information:
Cash and receivables FC 65,000
Inventory 77,000
Property, plant and equipment (net) 640,000
Total assets FC 782,000
Monetary liabilities FC 357,000
Ordinary shares?
Retained earnings 325,000
Total liabilities and equity FC 782,000
Additional information -
1. Exchange rates were as follows:
December 31, 2018 FC1= C$1.30
Average for 2018 FC1= C$1.34
2. Sales, cost of goods sold, and other expenses occurred evenly throughout the year.
3. A dividend of FC30,000 was declared and paid on December 31, 2018.
4. All items of property, plant and equipment had been purchased by Alibaba when the company began on July 14, 2005, when the exchange rate was FC1 = C$1.66.
5. At December 31, 2017, Alibaba had inventory of FC65,000. The inventory had been purchased when FC1 = C$1.40. Alibaba had inventory purchases during the year of FC524,000 and these purchases occurred evenly throughout the year. The ending inventory was purchased when the exchange rate was FC1 = C$1.31.
6. At December 31, 2017, Alibaba's monetary liabilities exceeded its monetary assets by FC390,000.
Required: What are the consolidated financial statements of M&M Lt. for the year ending December 31, 2018 assuming Alibaba Ltd. is a self-sustaining operation?
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